Is the oil software industry in decline?

Oil IT Journal editor Neil McNaughton wonders if the industry is in terminal decline. How much of the current woes are cyclical and how much are structural? A balance between the opposing trends of the commoditization of services, and the customized application of yet more high tech and science, may prove the key to survival.

Recent events in the seismic acquisition business reminded me of a trip I made to the US a few years ago. This was in the good old days (actually is was exactly at the end of the good old days as you will see later) when oil company wheeler-dealers like myself traveled business class or better. One of the good things about business class is that it is actually possible to hear the sound track on the in-flight movie—making watching a film an option.

‘Buggy whip’

Unusually for Hollywood, this film dealt with some real business issues. I remember Danny de Vito introducing the notion of the ‘buggy whip’ company. This is a reference to a company which carries on doing ‘what it does best’, regardless of the fact that its fundamental business has been killed-off by a changing market. Just as the makers of ‘the best buggy whips in the world’ carried bravely on while the Model T’s began rolling off of Henry Ford’s production line.


I must say I remember feeling very uncomfortable hearing this. The purpose of my trip was to try to farm out some acreage our company had acquired. Could Danny be trying to tell me something? He got to the point in a later scene—“The worst mistake a company can make is to expand into a declining market.” This really sent a shiver down my spine. In the early 1990’s our company had expanded into the rapidly shrinking onshore E&P market and here was Danny telling me we were doomed. He was right of course which is how I came to be writing editorials instead of wheeling and dealing.


Having had a good chance to observe the upstream oil and gas business over the last few weeks at the SPE and SEG exhibitions I have been wondering if parts of the industry aren’t following the path of the buggy whip. In other words, how much of the current industry’s woes is cyclical and how much represents irreversible, structural change.


The signs that something is amiss are everywhere. WesternGeco has thrown in the towel on its North American seismic acquisition operations—with the loss of 1200 jobs. WesternGeo president Gary Jones cited the “high-risk, no-return state of affairs in the seismic industry.” Petroleum GeoServices is said to be fighting off bankruptcy and posted a $ 1 billion loss for Q3 2002. These companies’ difficulties are partly self inflicted. At least in the offshore environment, seismic acquisition is so productive these days that a boat can acquire in under a day what it would have taken over a week to achieve a couple of decades ago. There has also been an order of magnitude reduction in real terms and in like-for-like processing costs over the same period.


There is no doubt too that some of the skills required to turn the old paper seismic sections into ‘black gold’ have gone the way of the buggy whip. Workstation technology means that today, you map the faults, ‘interpretation’ is no longer required. Similarly, powerful autotrackers, while not obviating the need to calibrate and correct from time to time, have boosted productivity enormously. Some have even argued that the whole interpretation process should be ‘commoditized’ in so far as the ‘correct’ interpretation is no longer a matter of, err, interpretation!


When you compound the orders of magnitude improvements in accuracy, costs and productivity you have to conclude that the industry has come a long way. One of the striking things about the tradeshows is the amount of science and high technology that is continually injected into the business despite the sub-par returns. Rock physics, amplitude versus offset computation, geomechanics of well bores, 4D seismics and real-time monitoring abound. But the increased application of high-tech and science to interpretation is a different trend than the commoditization of interpretation.


While the old ‘seat of the pants’ exploration is definitely a thing of the past, the widespread application of science and technology has yet to bear all of its fruits. This may be due to a kind of high tech blight that has been cast over the industry. In the 1990’s, 3D seismics was so successful in structural reservoir delineation that it became unthinkable to drill a prospect without a 3D survey. Competition for 3D resources meant that a lot of second grade acreage did not get shot and drilled. Likewise today, the promise of using technology to see into the reservoir before drilling—or to solve some of the more tricky exploration problems—mean that exploration management is getting even more picky.


I wonder if we aren’t at a kind of crossroads today between commoditization and customization. Heavy duty seismic acquisition and processing is predicated on economies of scale but at the same time, the increasing sophistication of the interpretation process mandates a great flexibility and rigor as data transits through the interpretation process. We are not in decline, but ‘buggy whips’ abound in our industry’s processes. The chasm between the ‘commoditized’ processed seismic volume and the interpretation workstation is one. Another is a very old chestnut for Oil IT Journal readers—the inability of operators and vendors to properly manage data through the asset lifecycle. This last is likely to prove crucial in the years to come as the new, analytical exploration successes are predicated on access to and integration of massive, cross discipline data sets.

The Liquidator

By the way, I didn’t tell you how my trip ended up. I sold the company’s assets for a song and wound up what was left. Which reminds me of the name of that movie—“Larry the Liquidator!”

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