Financing is not the issue
It was the opening day of the Offshore Technology Conference in Houston, May 2 - 5, and a panel of industry experts had been convened for a roundtable discussion titled, “Financing Offshore E&P: How Much Will It Require?”
Naively, I went in to listen with the idea that these folks were going to talk about where the money was going to come from to put together offshore E&P projects. However, one by one, each panelist seemed to dismiss the topic by saying that because there is so much cash available currently, the question is not how we will finance these efforts, but how we will address other challenges facing the industry.
In other words, money isn’t the problem. Instead, if we want to build up oil and gas reserves and production to meet rising demand, these best and brightest minds in the business said financing is the least of our worries. We should be more concerned with everything from geopolitical issues to manpower shortages.
Simon Frame, senior vice president for Wood Mackenzie who heads up the Houston office for the Scottish firm, pointed out that deepwater has become the main source of new oil and gas reserves worldwide and that it offers “excellent yet-to-find potential.”
The challenges, he said, are service sector bottlenecks, such as rig availability; resource nationalism, in places like Venezuela; rising costs of essential materials, such as steel; and manpower constraints caused by an aging petroleum industry workforce.
Tom Petrie of Denver-based Petrie, Parkman & Associates concurred. “Today, the industry is largely self-financing,” he said. He went on to cite statistics from the International Energy Agency about how per-capital energy consumption is increasing rapidly is developing nations, especially in China and India. The increasing demand for oil and gas will be a major factor in keeping energy commodity prices up, he said.
“Interestingly, we don’t see the financial community embracing this concept,” said Petrie, adding this is a study in perception versus reality.
As an illustration, he showed a headline, “Drowning in Oil,” in the spring of 1999 and another, “The End of the Oil Age,” in the fall of 2003 - both from The Economist. Both were off base, he said, pointing out that a June 2004 National Geographic cover had it right - “The End of Cheap Oil.”
Dan Pickering, of Pickering Energy Partners, focused on the limitations of the rig fleet and how few new ones are being built. And he showed how under-40 membership in the Society of Petroleum Engineers has dwindled from 33 percent in 1997 to just 25 percent in 2004.
“The industry clearly is not attracting young people,” he said.
David Rockecharlie, managing director of Randall & Dewey, said acquisition activity will continue to remain high because the equity market rewards acquisition strategies. Conversely, development budgets have remained relatively constrained.
Rockecharlie also noted that, increasingly, national oil companies around the world have decided that the oil majors aren’t necessarily their best partners. “Look for a lot more participation by independent companies,” he said.
A very interesting discussion - but not what I expected. OGFJ