Last month I was in Denver for a Town Hall meeting sponsored jointly by the AAPG Foundation and Association. Over 200 people attended a reception made possible by the generosity of Bill Barrett, Ray Thomasson and Steve Sonnenberg.
For my part, I spoke briefly to those convened and then opened the floor for questions, which were thoughtful, probing, insightful and revealing. I was at once proud and honored to be president of AAPG!
I stayed for quite a while after the formal Q and A, talking in small groups to AAPG members; I anticipated questions about the AAPG, challenges to some of my global tenets, thanks to me for serving and the like.
On this night, however, I was approached by a woman in her 30s, obviously bright and passionate about being a geologist. She asked, “Tell me why I should stay in this industry! Why should I not leave it for environmental or some other industry entirely? Tell me why!”
The question threw me back nearly 25 years: I first worked in the industry for Bob Sneider 1982-83, went back to graduate school and in 1986 was with Champlin Petroleum in Denver. Layoffs hit our industry hard and repeatedly for a few years. I never lost my job, but many of my friends did and many were asking, “Why should I stay in this industry? Why should I not leave it for some other industry entirely?”
And many left.
The world cannot afford for that to happen again.
Oil price cycles have been around since the industry began. Prices stabilized in the 1950s and ’60s, but hit their volatility stride again in the ’70s. Following the greatest inflation-adjusted rise in oil price in the modern era in 1980, hiring slowed dramatically and layoffs were rampant, except for one or two visionary companies that did not overreact. College students began to choose other majors, often nonscience, and geoscience professors began to focus on non-petroleum related subjects.
Thus, when oil prices began to rise again steeply in the early 21st century there were very few students to hire.
“Where are our students?” came the cry from industry.
“Where have you been?” was the reply from the hallowed halls of academe.
Companies began to compete fiercely for limited talent and cannibalized talent from one another. Signing bonuses were paid to grad students for summer jobs! The “good times” were back.
Some of us beseeched companies not to make the same mistakes that were made in the 1980s. Be more moderate in the highs, and put some “money under the mattress” to keep people employed when the lows arrived.
The lows are here. Did we learn from 1986? Are we learning today?
If we mess it up this time, in certain parts of the world the trust of students will be lost for good.
To improve, we must first understand. At the risk of oversimplifying, here’s a look at the latest cycle:
- Global oil demand in developing nations pressured supply.
- Speculators hedged and bought oil to protect against a weak dollar.
- Demand and speculation drove up the price of oil.
- High price dampened demand.
- Mortgage and credit crises slammed global markets and the economy went into recession.
- Weak demand, tight credit, exiting speculators and recession drove oil price down dramatically in less than a year.
- OPEC cut oil production in an effort to stabilize oil price and producers have begun laying down rigs, which will drive production down further.
- Lower oil (and energy) prices will help bolster the economy and demand will begin to increase, especially in developing nations.
- Global oil demand will pressure tight supply, and the cycle will begin again.
It’s no secret we are smack dab in the middle of a “low oil price” time, which makes many E&P projects uneconomic. Combined with very tight capital markets, lingering high drilling and service costs, intentional production cuts by OPEC and recession, demand for and production of oil and gas is declining globally.
Amidst all of this, the U.S. government has reached new levels of inexplicable. I half expect to see Mulder and Scully of “X-Files” fame make a guest appearance on C-Span, roaming the aisles of the Senate chamber with mystified looks on their faces …
In fairness, President Obama inherited one heck of a messy economy. And some of the things he is doing I support. Not so, however, his proposed energy “policy.”
In an effort to wean the American people from foreign oil, the president has asked Congress to remove vital tax incentives for high-risk exploration and add additional taxes onto the oil and gas industry.
Compounded with crushingly low energy prices, tight capital markets and lack of drilling access, this new “policy” likely will put many independent producers out of business, causing jobs to fall faster than oil rigs, accelerate U.S. production decline, decrease the federal tax base, expose U.S. resources to purchase by foreign interests and make the United States even more dependent on foreign sources of oil and natural gas further risking national security.
Low energy prices will eventually help the economy recover. Recovering economies need energy, which will be in even shorter supply if we pursue the proposed energy policies, and cause oil price to bounce up once again – likely way up.
Extreme highs and extreme lows are extremely unhealthy. Wise policy should work to mitigate volatility, not enhance it.
Wake up, Washington!
Just because the banking, housing and auto industries need to be bailed out doesn’t mean you have to set policies that crush another major industry. The oil and gas industry is the bridge on which global economic recovery can be built.
Work with us for the benefit of everyone. We all are on the same team.
How did I respond to the woman in Denver?
I asked her if she was passionate about what she did. She said she loved drilling gas wells.
I challenged her to stay with it and counseled that it would not always be easy.
I suggested that hard work can be fun – which elicited a bit of a glare!
I promised her that our great industry has jobs for those who are passionate and who are willing to adapt.
To those of you in positions of influence globally, please put the greatest of care into developing creative ways to retain jobs, keep hiring programs active and continue your support for research at universities so that there will be students in the pipeline when things turn around again. Let’s not become part of the problem by overreacting in good times and bad.
Do it for our friend in Denver.