Smith Notes Key to Attracting Money

‘We Must Lower the Risk'

By LOUISE S. DURHAM
EXPLORER Correspondent

Sanchez Has ‘To-Do' List for Government

"This country faces an ongoing threat of an energy crisis that will only get worse if we don't take steps soon to shore up the domestic energy inventory."

No, this is not a statement made by a veteran geologist but one delivered by Texas democratic gubernatorial candidate Tony Sanchez in his "Power Lunch" presentation at the recent APPEX in Houston.

With myriad business ventures to his credit, Sanchez drew heavily from his experiences as an oilman to beat the drum for the oil and gas industry.

"The whole vision of the future assumes we will continue to enjoy the benefits of plentiful energy supplies," he said, "but despite industry's efforts, our new discoveries and reserves are not keeping up with actual demand."

About 25 percent of domestic oil and gas comes from offshore production in just six states, Sanchez noted: Alabama, Alaska, California, Louisiana, Mississippi and Texas. Reliable estimates peg about 60 percent of the remaining U.S. domestic hydrocarbon resources as offshore.

"Unfortunately, 600 million acres have been locked out of exploration even though we've learned how to discover and develop these reserves with little or no environmental impact, and to do so safely." Sanchez said. "In fact, offshore safety records are three times better than U.S. workers in general."

So, you ask, what is the solution to jump-start the domestic industry toward an era of increased drilling and production?

For starters, Sanchez has a "to-do" list for government:

• Provide incentives to generate new prospects to find hydrocarbons by encouraging greater use of technology in evaluating leads and prospects.
• Revisit and strengthen incentives such as tight sand production.
• Do not hinder small companies with rules designed for large companies.
• Establish common sense environmental rules.
• States should offer a stable climate for tax and government spending so companies can plan ahead accordingly.

"If we are to predict the future," Sanchez noted, "we must create it."

-- LOUISE S. DURHAM

"Once the domestic rig count plunged from a high of about 4,500 in 1981 to about 700 in 1986, it never really recovered," noted Dan Smith, AAPG president, during the APPEX "Power Lunch" presentation in Houston. "Clearly, we must do something about this."

He presented three key questions that must be addressed by industry as it strives to meet the exploration challenge it faces to revitalize domestic drilling activity:

• Who is going to be looking for new reserves 10-20 years from now?
• What do we do now to have the tools for successful future exploration?
• Where is the money going to come from?

"We must figure out how to do a better job with exploration to attract the money to find new reserves," Smith said.

"Even at fairly high prices like $30 per barrel and $2.60 or so per Mcf, most of the money is going for buying and selling existing production and not exploration," he said. "To increase the money going to exploration, we must lower the risk."

Information, Please

Now, perhaps more than ever before, "risk" is a four-letter word of another sort for many financiers who may have capital to invest because it's been pulled out of the ailing stock market. Not surprisingly, these and other risk-adverse folks who invest in oil and gas projects are seeking a safe haven for their dollars -- read: production.

Smith proposed two solutions to assist the industry in the quest to lower exploration risk:

• Use the best technology available coupled with basic geological principals of hydrocarbon accumulation.
• Speed and access to information.

"We're doing a good job of getting better technology all the time, but there's a reduction in using basic geological principles such as structure and stratigraphy to interpret where the good rocks will be," Smith said. "We need to get back to the basics."

There's also a compelling need for better, faster access to geological data, and the AAPG GIS Initiative for data management via GIS is tackling this issue head-on.

"We're taking data from all the publications of AAPG, affiliated societies and government agencies and digitizing them to use with the click of a mouse," Smith said. "And we're now mining the data to put them into useable form.

"For instance, we're categorizing the information into data bases such as fields, burial history, seismic lines, reservoirs, traps, source rocks, seals and others," he said, "and then we're georeferencing the data into data bases so someone can access all the data available for any one locale on the earth."

The sedimentary provinces of the world are color coded to show the areas with fields digitized to date (500), which ones contain burial history case studies (700) and available seismic lines (2,200). A user can click on any area and see what data are available for a particular field.

To demonstrate, Smith displayed the data base for Eugene Island Block 330 field in the Gulf of Mexico, which contained an array of available information. For instance, the burial history can be pulled up instantly as well as the seismic lines, and users can even remove the colors to perform their own interpretations.

The GIS Initiative is a partnership of AAPG and corporate sponsors, according to Smith, who noted the entire industry is realizing this is an innovative mechanism to provide a faster way to be effective in finding new reserves.