Back to the 80’s?

PDM’s editor Neil McNaughton reports on divergent views of the future for independent oil and gas companies. He discusses how new technologies such as application service provision (ASP) may affect both independents and the E&P software industry.

There is something implausible about economists telling buyers or sellers what the right price for a commodity should be. International Energy Agency director Robert Priddle recently harangued OPEC over the high price of oil. Service sector bosses have simultaneously been complaining to oil and gas corporations about their losses. Despite the entreaties, the pips continue to squeak, whether it be at the gas station or in the service sector. Baker Hughes’ fire sale of the lion’s share of Western Geophysical contrasts with the stupendous amounts of cash the majors are making just by sitting on their hands. All of which to my way of thinking is an economic wonderland. But it gets better.

running out

Recent studies from Robertsons, the USGS and the International Energy Agency have confirmed the obvious fact that world oil resources are running out. Estimates of a few decades of production have been advanced. The received view used to be that these remaining reserves would be increasingly hard to locate and exploit, that they would come in smaller, more complicated fields, and that the new focus would be on near-field developments rather than wildcats. That was before the deep offshore came along. Suddenly, instead of sweating the hard stuff, we are back to hunting elephants.

wonderland

This geological wonderland was much in evidence at the AAPG convention in New Orleans last month (see pages 8-10 for our report). The leitmotif seems to be, if you aren’t investigating some deepwater super-giant in your multi-million dollar Visionarium, then you are nobody! The situation today is reminiscent of that of the 1980’s when the emerging technology of 3D seismics was the exclusive preserve of the majors. Not for long though, as the independents discovered that the new technology was perfect for re-vamping existing fields and generating instant low risk cash.

the fall

3DX Technologies’ Ronald Nowak, described* the independents’ rise and fall in the following decade to conclude ”By the downturn in 1998, the technology based small independents [were], scrambling to raise capital, at a time of extremely low oil prices. The results to date have been a series of mergers, bankruptcies, and financial failures, signaling the fall of many of those unique independents.”

and rise?

CNG Petroleum’s John Lewis presented a more optimistic view of the independents’ future. Lewis believes that “Independent oil and gas companies have become major players in all aspects of the business [] and are now proficient in drilling, [] and developing infrastructure for all areas of the GOM including the deepwater which is a key to their future on both the domestic and international E&P fronts.”

ASP

What most impressed me at the show was the breadth of technology on offer and its increasing accessibility - particularly through application service provision (ASP). ASP promises an economical and rational IT paradigm to the smaller organization. At the same time, ASP may undermine the cost structure of the software developer - much in the way that MP3 is doing for the music business. Depending on your viewpoint, this may hurt innovation, or enhance developer focus on client needs. It will probably do a bit of both.

allegory

Another eye-catcher is visualization technology, almost an allegory of the mega-merged oil co. The multi-million dollar Visionarium makes a statement along the lines of “this is technology and capital-intensive activity that only the great and mighty can achieve.”

elephant hunter

So the Visionarium is essential kit for the deepwater elephant hunter! Without begrudging the mega-majors their fun (and Visionaria) lets hope that technology transfer to the independent sector, as happened with 3D in ‘80s, together with a rationalizing of what is the real added-value will again undermine the advantage of scale that is claimed by the largest oil cos. �