Offshore

Anyone who has been watching the stock market knows that it has been exceptionally volatile lately and that the trend, though there have been ups and downs, is mostly down. The global economy is unstable, and the effect on the oil and gas industry could be significant.

Douglas Becker of Bank of America told attendees at the RMI Oilfield Breakfast on November 12 that they should listen to the stock market because it is a leading indicator of oil patch fundamentals.

According to Becker, although the stock market isn’t perfect, it has predicted three of the last 10 down cycles. “There is real information here,” he said, “and things could get worse than the industry expects in the short term (the next 12 months).”

One of the indicators Becker pointed to was the rig count, which is just beginning to decline. Though there has been only a small dip in utilization numbers, Becker believes there is a 35% probability that conditions could achieve lows similar to those seen by the industry in the 1980s.

The market shows offshore drilling stocks trading at 60% of net asset values, Becker reported, despite backlogs of tens of billions of dollars on the books for the largest drilling contractors. And the predicted growth rate for oil service companies in the coming year is 1.8%, well below the healthy level of 3%, he said. “The possibility of a multi-year global recession is not insignificant.”

The repercussions of the drop in oil price could be great. If E&P companies reduce their spending, the result will be a drop in global production, which will affect other industries.

Though Becker had little good news to share over all, he said there is light at the end of the tunnel.

One positive development is OPEC’s production cut of 1.5 MMb/d from the quota of 28.8 MMb/d, which took place at the end of October. Saudi Arabia, the largest oil producer within OPEC, recently announced a 5% cut in production to Asia (175,000  b/d) beginning in December. And according to Becker, further cuts could be announced at the next meeting, to be held in December.

Although there is some good news in the works, the primary message is one of caution. The upcoming downturn is going to hit hard, and it could last longer than a lot of people think.

(http://rmi-houston.com/OBFPresentations/Douglas_Becker.pdf to view Douglas Becker’s complete presentation.)

The oil and gas industry has a reputation in the US, and it isn’t for being a group of “green thinking” people.

Those within the industry know that we have worked hard to improve operations with the goal of reducing environmental impact and have invested in technology to reduce the footprint of drilling and production operations. Unfortunately, most of those efforts seem to be flying under the national radar. Our bad reputation overshadows reality.

George Alcom, former chair of the Independent Petroleum Association of America (IPAA) and president of Alcom Exploration talked about this problem at Hart Energy Publishing’s “Energy Solutions” conference in Houston November 6-7.

“The energy industry in Washington has been in the ditch for a long time,” Alcom said, and that situation has got to change. “We want to be recognized as thoughtful about the environment.”

Achieving that goal is not going to be easy. Education is critical, and educating the American public is an ambitious goal. According to Alcom, though, it is an absolute necessity, and the recent change in administrations opens the door to opportunity.

“We’re past the rhetoric of the election, and we’re on to governing,” Alcom said. The important thing now is to bring the “right message” to Washington. And that message is a strong defense of the industry. “Defense! Defense! Defense!” Alcom said. That’s what the industry needs in Washington and what the IPAA is implementing.

Alcom believes that when Washington views gas producers in the US as responsible about the environment and interested in educating people, the door will be opened (even if just a crack) for additional gains, such as opening new areas for exploration.

North America’s gas resources are enormous, Alcom said, pointing to the Barnett (50 Tcf), Fayetteville (45 Tcf), and Horn River (100 Tcf) gas shales as evidence of enormous reserves. And much of this reserve potential is recoverable thanks to today’s technology, which has boosted recovery levels from 10% to 50% in some places. “Gas is precious,” he said, but it isn’t scarce in North America. “We’ve got a lot of it. It is huge!”

Alcom suggested that producing these domestic reserves could be a significant part of the US solution for energy security. The country needs a strategic long-term plan, and gas should be part of the picture, but drillers have to gain access to the reserves. “Access continues to be a big problem,” he said.

Like other organizations that represent the oil and gas industry, the IPAA is working to open access through its work in Washington. It is trying to change the industry’s reputation and prove to the new administration that gas producers and Washington are on the same page, that their goals are the same, and that they are both working toward energy security.

I wish the IPAA luck in getting this message across. It is one that will be valuable not only to independent producers, but to the country as a whole.

It’s been said that anything worth having is worth working for, and that’s probably a good maxim for the IPAA to espouse as it pursues its goals. History shows us that Washington is not likely to welcome the organization with open arms or open minds. My guess is that the IPAA has its work cut out for it.

It is a lot more difficult than one might imagine to determine what noises affect marine mammals. And it might surprise you to find out how much time, effort, money, and creativity are being invested in finding out.

Aaron Thode a researcher at the Scripps Institution of Oceanography talked about the work he is doing in marine mammal acoustics at a conference held in Houston October 28-30, 2008. The goal of Thode’s project, funded by the E&P Sound & Marine Life JIP, was to determine if whales identified by towed acoustic arrays were to the left or right of the towing vessel.

According to Thode, passive acoustic towed array systems are a popular configuration for current marine mammal mitigation efforts. Typical systems use an array of linearly arranged hydrophones to measure the difference in arrival times of an acoustic pressure wave across the array. This measurement can be converted into a bearing estimate.

The problem, Thode explained, is that the phone cannot determine the originating direction of the sound. “Using single linear array, it is impossible to tell if a sound is coming from port or starboard.”

Technology for measuring the acoustic particle velocity of a sound wave has existed for 50 years, and directional sensors have been used for 30 years, Thode said, but because the sensors are very sensitive to vibration, traditional sensors are not suitable for towed arrays.

Newly introduced technology, however, has eliminated that problem. The new sensor, Thode said, “measures pressure and velocity as well as pitch, roll, and yaw,” enabling it to orient itself to enable accurate readings to determine if marine mammals are to the right or left of the towing vessel.

Thode conducted a test of a 1.5-m (5-ft) vector sensor towed array module off the coast of Sitka, AK, in July 2008. That test, Thode said, demonstrated the system’s ability to detect and resolve the bearing of sperm whale sounds. The system also demonstrated what Thode called “an unexpected ability” to eliminate noise contamination from the towing vessel.

This project officially concludes in November, 2008, but other similar projects to protect marine life are ongoing, and they are backed by the E&P industry by such companies as Anadarko, BG Group, BHP Billiton, BP, Chevron, ConocoPhillips, Eni, ExxonMobil, IAGC, Santos, Shell, StatoilHydro, Total, and Woodside.

When detractors of the oil and gas industry complain that marine life is be threatened or harmed by exploration activity, it might be a good idea to point them in the direction of this JIP.

Americans are feeling the slowdown in the economy, and many are a bit fearful of what is to come. Unfortunately, these misgivings are not misplaced. In fact, for the general population, there is arguably less anxiety right now than the situation warrants.

In the interest of gauging the seriousness of the situation, it would be advantageous to take a look at some of the things going on in our industry. Some of the recent news has not been positive. Businesses are cinching their belts in anticipation of a prolonged recession, and a lot of “guaranteed” projects that have been on the books for months could be shelved.

The following news bites give a little more insight into the big picture.

Oct 22 - Baker Hughes Inc. said it expects about 200 drilling rigs in North America will be idle in 4Q 2008 because of the tighter credit markets and the declines in oil and gas prices.

Oct. 23 - Suncor Energy announced it would delay construction of an oil sands upgrader for the C$20.6 billion Voyageur expansion by one year to 2013.

Oct. 23 - Nexen Inc. and Opti Canada delayed a decision on the second phase of the Long Lake oil sands project to sometime in 2009. Expansion would double production of synthetic crude to 120,000 b/d. The first phase, which cost C$6.1 billion, is now just starting up.

Oct. 24 - Newfield Exploration Co. announced it will cut back 2009 spending by 21% and that it has trimmed its production outlook for 2009. The company expects to spend $1.65 billion, down from its previous estimate of $2.1 billion. Newfield reports it is “matching its capital budget with cash flow expectations.”

Oct. 24 - Jim Mulva, CEO of ConocoPhillips, said the company will keep its 2009 capital spending plan flat at its 2008 level of $15 billion, adding “We want to live within our means.” In an Internet broadcast, Mulva said that as the company moves forward, the primary goal is to maintain a strong financial balance sheet position with flexibility and credit capability. “Second,” he said, “we want to fund those capital commitments and opportunities we have as a company.”

Oct. 24 - Steve Farris, CEO of Apache Corp. said the company plans to spend about $1.2 billion on exploration projects in the coming year. During a conference call with analysts, Farris said Apache will operate its business within its cash flow. The company plans to start looking at assets to buy, he added, saying the “economic reality is a lot better today than it was four or five months ago.”

Companies that previously cut 2009 spending plans include Chesapeake Energy Corp., Petrohawk Energy Corp., SandRidge Energy Inc., and ATP Oil & Gas Corp. Others are joining this list daily.

The many predictions that painted a rosy picture of our industry through 2012 are being revised in light of the present economic climate. That climate is changing, and it will have a volatile effect on investment and project execution in both the near and long term.

A fairly recent addition to news programming called “Huckabee” is a political commentary program on Fox News hosted by former Republican Arkansas Governor Mike Huckabee. The program premiered September 27, 2008 and airs regularly on Saturdays at 8 PM EST, with a repeat on Sundays at 8 PM EST.

Generally, the show opens with a monologue by Mike Huckabee, who discusses the issues of the day. When the monologue is over, Huckabee opens the floor to questions from the audience. As is the way of most news/talk programs, the show also features one or more guests and invited commentators.

The show ends with a house band performing a song. Band members typically include host Mike Huckabee (bass guitar), Chief Religious Correspondent Lauren Green on keyboards, and Kelly Wright at times as a vocalist.

On Saturday, October 18 (and Sunday, October 19), the house band was joined by country and western singer Aaron Tippin. Tippin, who has been an active supporter of the McCain/Palin ticket, is also a supporter of the drilling industry. He vocalized this support in a song he sang at the close of the show. The song, called “Drill here, Drill now” promotes domestic oil and gas exploration drilling.

For the benefit of our E&P blog readers, I’ve included the lyrics here.

Drill here, Drill now

Hello…..Is anybody out there listenin’ in Washington DC?

his is the suffering voice of America crying out for relief.

Now I don’t know what a gallon of gas costs up on Capitol Hill,

But we sure know what it cost down here in reality-ville.

And the damage already done has been a mighty heavy toll,

And if we’re gonna fix it we gotta start right here at home.

CHORUS:

Drill here, drill now!

How ‘bout some oil from our own soil that belongs to us anyhow.

No more debatin’ we’re tired of waitin’. Everybody shout out loud,

Drill here, drill now!

Every time a foreign tanker pulls up to our shore,

They got us over a barrel while they bleed us a little more.

And think how much it costs just to bring it all that way,

And how many American jobs that’d make if we were drillin’ in the USA.

Oh and God forbid if our oily friends should decide to cut us off,

We’d be standin’ around with our britches down - Now listen to me ya’ll!

CHORUS

Well the winds of change are blowin’,

Yes and we recognize that need,

But tractors, trucks, cars and planes can’t run on tomorrow’s dreams.

So while we’re workin’ on the future, we can’t ignore today,

‘Cause who knows how much time the alternative might take.

Somethin’s gotta be done right now ‘cause friends it won’t be long

Before this great big country comes grinding to a halt.

CHORUS

I don’t know if the message will make a difference in Washington DC, but I’m pretty sure C&W fans (and that includes a lot of Texans) will be listening.

If you’re interested in hearing the song for yourself, you can listen to it free at http://aarontippin.musiccitynetworks.com/index.htm?inc=5&news_id=13986

Feel free to close your office door and sing along.

As I mentioned in my blog last week, I was in Paris the week of October 6, attending the Schlumberger Information Solutions (SIS) Global Forum. There were a lot of interesting speakers in attendance, needless to say, but the one I found the most interesting was Dr. Fatih Birol, chief economist at the International Energy Agency (IEA).

Dr. Birol presented a lot of information that I think would be of interest to readers of E&P, which is one of the reasons I included some comments from his presentation in a Web exclusive story last week (http://www.epmag.com/webonly/item13054.php).

CO2 capture and storage was one of the main focuses of Birol’s talk, some of which I presented in my article, but a 20-minute presentation doesn’t do justice to the subject. Later this month, the IEA is releasing a report that addresses this subject in more detail, “CO2 Capture and Storage: A Key Carbon Abatement Option.” If the excerpts that made their way into Birol’s presentation at the forum are any indicator, the report will be well worth reading.

One of the things that isn’t included in my write-up is some of Birol’s comments on coal and how it factors into the world energy equation. The focus these days when we’re looking at India and China is the huge growth in demand for oil and gas. The fact of the matter is, though, that coal has had enormous growth in those countries over the same timeframe. The implications in terms of CO2 are significant, but they have somehow ended up under the radar.

The IEA is investigating a broad range of topics that will impact our industry in the short and long term, much of which will be included in the organization’s “World Energy Outlook 2008,” which is due to be released at the end of November. It too will be something that will be worthwhile to spend time reading.

There are many other reports available through the organization as well, including many on technology. To see more specialized reports and to access additional information, visit http://www.iea.org/.

The Schlumberger Information Solutions (SIS) Global Forum, which took place in Paris this week, drew people from around the world who are interested in integrating their operations.

According to Tony Bowman, president of SIS, who spoke at the opening plenary session on day two of the conference, this year’s event attracted more than 400 of the company’s customers representing 130 companies from 50 countries.

The forum, which has been held every other year for the last decade, began as a means of highlighting the company’s GeoQuest software. The event has evolved into a forum for discussing new concepts and trends in the industry.

This year’s event was organized in concurrent tracks that featured presentations on innovation, production and operations solutions, geosciences and reservoir engineering solutions, new technologies, and operations support. Operators including StatoilHydro, Hess, Pemex, Total, ONGC, Shell, and others presented case studies that illustrated problem-solving approaches and results in the course of the three-day event.

The opening session on Monday included presentations from Dr. Fatih Birol of the International Energy Agency; Jean-Marie Masset, senior vice president, geosciences at Total; Effendy Cheng Abdullah, senior general manager of the petroleum resource exploration department at Malaysia’s state-owned operating company, Petronas; José Formigli, executive manager of E&P pre-salt for Petrobras; and Andrew Gould, chairman and CEO of Schlumberger Ltd.

The second day’s plenary session focused on IT trends impacting the oil and gas industry. Panelists included Paul Helm of H-P, Herbert Yuan of Shell, Chuck Hollis of EMC, Hany Abu Khadra of Saudi Aramco, Joseph Williams of Microsoft, and Ashok Belani of Schlumberger. Each panelist gave a brief presentation about his area of specialization, then answered questions from the floor about IT issues and potential solutions.

The forum concluded on Thursday, October 9, with an awards ceremony that recognized the best presenters: Kevin Bradford of Shell was best presenter in the subsurface geosciences and reservoir engineering category; Richard Sagli of StatoilHydro won in the category of production, operations and drilling; and Achim Kamelger of OMV was best presenter in the solutions and services category.

The week was one of insightful presentations, interesting discussions, and practical problem solving. It was a learning experience for me as well as any others.

If you are interested to know more about the opening plenary session, read the article on http://www.epmag.com/webonly/item13054.hp. For the full conference program, visit www.slb.com/sisforum2008.

For those of you who don’t know, the Houston Technology Center (HTC) is a business accelerator that assists Houston-based emerging technology companies within several key sectors: energy, information technology, life sciences, nanotechnology, and NASA/Aerospace technologies. HTC serves as the Gulf Coast Regional Center for the Texas Emerging Technology Fund, helping small to mid-size companies expedite new technology commercialization.

If you live outside Houston, you aren’t likely to attend the HTC events, but you could still benefit from the work the organization is doing. The organization is involved with a broad application of technologies that impact our lives beyond the realm of energy consumption.

HTC held an event October 10 during which awards were presented in the amount of $250,000 from the Texas Emerging Technology Fund (ETF) to three companies that are engaged in emerging technologies: Sunrise Ridge Algae Inc., BetaBatt Inc., and Cormedics Corp.

Sunrise Ridge Algae, Inc., is working to commercialize an algae-to-biofuel technology that converts waste water and waste CO₂ to high-value biofuels and animal feeds. (For more information about Sunrise Ridge Algae, Inc., visit its website at www.sunrise-ridge.com.)

BetaBatt develops long-lasting, reliable power sources. It has researched and patented a novel 3D energy conversion architecture based on nano-scale porous silicon. The company’s first commercial product has a 12-20 year lifespan and mission-critical reliability. The BetaBattery addresses current issues faced by the medical implant, oil and gas, and remote sensing industries, as well as military and space organizations. (For more information, visit www.betabatt.com.)

The third recipient is Cormedics Corp., which develops novel technologies and therapies that selectively treat the entire heart by introducing them into the pericardial space, which surrounds the heart. (For more information, email jmeador@cormedics.net.)

Although the US Gulf Coast is one of the nation’s critical energy centers, business in the region does not focus solely on oil and gas. The medical center in Houston is one of the best in the world, and the aerospace industry is constantly making inroads into the unknown. The diversity in Houston and the surrounding area make this a dynamic region where investment in technology takes place across a very broad spectrum. Fortunately for the three companies that each received a quarter of a million dollars in funding, HTC is enabling the search for answers to move forward.

For more information about HTC, contact dcarstens@houstontech.org.

A new report recently released by Douglas-Westwood Ltd. says an increase in ROV (remotely operated vehicles) demand, driven by the increasing push into deepwater and the present high oil price, will result in the need for 650 new work-class units over the next five years.

The World ROV Market Report 2008-2012 describes the development of the ROV industry, gives examples of the various types of ROVs and their components, and discusses new technologies.

The study also looks at economics, noting that 2007 operational expenditure in the global work-class market was just under $1.5 billion. Douglas-Westwood analysts forecast an increase to $2.4 billion by the end of 2012.

The report identifies and charts key underlying drivers and defines their influence on the global work-class ROV market, including global energy demand, oil supply, production profiles, offshore expenditure, drilling activity, rig availability, deepwater & subsea expenditure and innovative subsea processing technologies.

More detailed information is available at http://www.douglas-westwood.com.

Analysts at EnergyPoint Research have taken a look at the service and supply sector and have released a report that evaluates their performance. The company’s Drilling/Wellsite Equipment & Materials Survey of oil and gas industry purchase decision-makers shows major oilfield supplier companies among both the best and worst performers, with some of the biggest players showing the steepest decline in customer satisfaction.

Doug Sheridan, EnergyPoint Research managing director, commented on the survey and resulting report: “In the oil and gas industry, the success of initiatives ranging from exploration to the development, management, or optimization of existing assets has never been more dependent on the quality and capabilities of one’s supplier partners. Add to this the never-ending push to increase productivity while driving out costs and it’s easy to understand why supplier relationships are so important.”

Despite the challenges in the current demanding market, certain oilfield service providers earned outstanding marks, in part by maintaining a long-term focus on customer relationships. One example is Houston-based Derrick Equipment, which has risen from 14th place in the 2005 survey to top the latest customer satisfaction list.

“High levels of customer satisfaction do not materialize out of thin air,” Sheridan said. “They require a full-time commitment and a willingness to invest in the resources and processes that ensure customers consistently have positive experiences. The ability of the top-rated suppliers to register these high scores in our surveys, particularly as bottlenecks and performance issues have recently hampered the entire industry, says a lot about their determination to meet the needs of customers regardless of industry conditions.”

This EnergyPoint Research report is available from energy business analysts Douglas-Westwood Ltd.

According to Andrew Reid, Douglas-Westwood managing director, “Now more than ever, there’s a need for standardized, objective, and independent ratings and market-based information regarding the oil and gas industry’s satisfaction with the suppliers upon which it depends so heavily. Knowing what is important to customers is key to suppliers optimizing long-term decision-making and resource allocation.”

Sheridan agrees. “The EnergyPoint surveys are essential to those players interested in taking proactive steps to manage and enhance customer satisfaction within their organizations. The surveys will also be valuable to oil & gas company purchase managers and major investors in the oilfield services industry who wish to compare the various players’ performance.”

The 2007 Drilling/Wellsite Equipment & Materials Survey reflects evaluations from 632 respondents in 176 exploration and production companies, drilling contractors, and consultancies worldwide

For further information or to purchase the surveys, email publications@dw-1.com.