A YEAR OF CHANGE, A NEW FUTURE

Seldom do so many changes in a single year bear so strongly on the future as those that occurred in 1991.

Dec. 30, 1991

3 min read

Seldom do so many changes in a single year bear so strongly on the future as those that occurred in 1991.

It was a year in which a swift, decisive war rearranged power and politics in the Middle East. Iraq, defeated in Kuwait, is no longer a regional menace. And formerly isolationist Iran has switched to a moderate course, welcoming foreign capital to selected petroleum projects. Among other things, the war demonstrated the abilities of major Middle Eastern producers to replace most of the lost Iraqi and Kuwaiti oil, to do it so convincingly that crude prices fell instead of jumped when the war began, and to sustain incremental production through the year.

The close of 1991 finds Kuwait and Iran rebuilding from separate wars with Iraq, Iraq itself in irons, and Saudi Arabia and the United Arab Emirates adding production capacity. After more discoveries this year, Yemen seems destined to become a significant oil exporter soon. These are crucial developments. As the war showed again, Middle Eastern oil is a matter of perpetual international concern.

OTHER POLITICAL CHANGE

Political change wasn't confined to the Middle East in 1991. The Soviet Union collapsed as it and Eastern Europe groped for new economic beginnings in the wreckage of Communism. And as the Iron Curtain fell, world-class oil and gas opportunities emerged.

Opportunities blossomed elsewhere as well: in established producing countries of Asia-Pacific such as Indonesia and Malaysia and in formerly closed places such as Viet Nam and Myanmar; in Latin America, where financially beleaguered governments are learning the benefits of privatization and foreign capital; and in similarly reawakening countries of Africa. With opportunities taking shape in areas like these, and with open and established areas such as the North Sea still attractive, it became clear in 1991 that the decade will be an intense contest for capital.

Also this year, an exodus of major oil companies from the U.S. hit full stride. As other countries beckon, governments in the U.S. resist industry operations. To be sure, there's work to be done in the country, most immediately in the development of reformulated vehicle fuels. But the U.S. upstream focus is shifting to small, heretofore overlooked targets in or near producing areas. Increasingly, the game belongs to technically and financially sophisticated independents dedicated to niche opportunities and cost control.

Related to the emigration of majors from the U.S. is another American hallmark of 1991 with sad portents. An industry that thought it got lean and mean in the late 1980s sawed the payroll again this year and didn't even let up for the holidays. The reasons are sound: moribund markets, shifts overseas, investor pressures to fortify or restore profitability. But where will it end? What sort of future can there be for an industry that runs on brainpower with so many people, so specially trained, cashiered in mid-career?

LAYOFFS WILL HURT

Nobody likes layoffs, least of all companies that must make them. And layoffs certainly aren't unique to the oil and gas business. They're essential in difficult times, especially when taxes, mandatory compensations, required compromises, and other peculiarly U.S. legalities make it ever more costly to employ Americans. But necessity makes the layoffs no less regrettable. Ravaged rosters will hurt U.S. companies in the future-at home and abroad.

As 1991 showed, there's no shortage of oil and gas opportunities in a world that needs energy. The questions for 1992 and beyond are which of today's opportunities become tomorrow's major projects, how those projects are financed, and who performs the work.