The kernel of a new oil boom may be germinating, but there's anything but a boom mentality holding sway in the petroleum industry.
With memories of an extended downturn fresh in mind, the industry is not behaving as it did in the last boom of the late 1970s and early 1980s.
That's a central theme expressed by directors of Cambridge Energy Research Associates (CERA) and Arthur Andersen, who shared some "between-the-lines" observations stemming from their firms' joint review of world oil trends (see related story, p. 34).
Lessons not forgotten
"The lessons you learn the hard way are not easily forgotten," said Victor A. Burk, managing director of energy services for Arthur Andersen.
High commodity prices in 1996, continued gains in worldwide demand, and technological advances that have opened up giant oil plays inaccessible just a few years ago have fueled a strong oil industry rebound.
Nevertheless, the industry will remain in a cost-conscious, belt-tightening mode, agreed Burk and CERA Managing Director Joseph Stanislaw.
Employment probably will gain overall, but oil companies may not lead the hiring. Rather, much of the employment gain will be made by shifting work to individuals or firms that provide specialized services to the industry, they predict.
Due to more emphasis on environmental and safety concerns, the industry won't meet the drilling upturn challenge by hiring unskilled rig workers, as occurred in the early 1980s, they said. Rather, it will resort to outside contractors for training rig workers, along with many other functions, including accounting and facilities management. Many skilled workers and technical specialists will come from developing nations and be educated and trained to fill jobs once dominated by U.S. and European workers, Burk and Stanislaw predicted.
Market psychology
These are just a few of the analysts' perceptions on how the industry will regroup to take advantage of the upturn, while buffering itself against future downturns in an era where boom can go bust overnight.
Psychological factors are as likely as any factor to drive prices, the analysts observed.
"Last autumn, the market was not short one barrel, but prices jumped $6 on the notion that oil would not be there this winter," Burk said.
Right now, the market is more sensitive to rig supply than oil supplies, they noted. The worldwide shortage of offshore rigs "is the biggest constraint to growth," Burk commented. At the same time, companies are reluctant to build too many rigs, because "it only takes one (extra) to drive the market in the other direction," Stanislaw added. "The challenge of prosperity is not to overbuild."
Consolidation, alliances
Consolidation in all sectors of the industry will continue, Stanislaw and Burk predicted, as the industry continues to seek efficiency gains.
"Strategic alliances make sense," Stanislaw said. "The synergies that result create a whole new competitive environment."
Companies can cash in on the real estate value of extra facilities when they join forces, for instance, and apply the proceeds to developing their core businesses. In the downstream sector, companies can sell refineries and focus on "large retail outlets with high-volume flow," Stanislaw said.
In fact, fueling the newest wave of energy industry consolidation is the desire to focus on core business areas at which a particular company excels. One example they noted was Unocal Corp. which last fall sold its downstream assets to Tosco Corp. to hone its focus upstream: "You can teach an old dog new tricks, I think," Burk said.
"The oil industry is one of the most flexible in the world," he continued. "We have had a lot of crises in the last 20 years. No one went short of any oil. It's not perfect, but it's a very fluid system."
Copyright 1997 Oil & Gas Journal. All Rights Reserved.
