By PETER R. ROSE
Editor’s note: This is the text of the Presidential Address, presented by AAPG President Peter R. Rose at the recent Annual Convention in Houston.
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The theme of AAPG’s 89th Annual Meeting is “Perfecting the Search, Delivering on Our Promises.” In introducing this theme, I would first like to set the scene for the next generation’s energy future.
As shown by Jack Edwards, so-called “Peak oil” is not imminent, but may occur toward the middle or end of the next generation. Even so, “Peak oil” is not the key question.
The larger issue is the shrinking of world productive capacity compared with growing world oil demand. Thanks to Total for this figure.
Although we will continue to see demand pressure, especially from expanding Asian economies, we must remember that crude oil is a world commodity, and there will be downs as well as ups in future oil prices. During the “ups” we will see “pushbacks” through conservation, just as we saw in 1980-85.
Even though prices now remain generally high compared with four years ago, rising service costs and undisciplined competition will increasingly reduce future E&P profitability.
The advent of LNG technologies and global markets will cause natural gas usage to expand in relation to crude oil, and natural gas prices will de-couple from crude oil prices. Thanks to Scott Tinker for this figure.
Regardless of the degree of validity of anthropogenic global warming, the Earth’s strong current warming trend will generate increasing public concerns about climate change. There will be growing pressure against fossil-fuel use, especially oil and coal. This will have both positive and negative aspects:
- The western economies will use market forces, public opinion and government incentives to adopt increasing efficiencies, especially in transport fuels, as well as new technologies, which will generate new investment opportunities. Amory Lovins’ talk at the DEG luncheon on Wednesday provides an excellent example.
- North America will see increasing interference from political, regulatory, special interest and media sources applied to all aspects of fossil-fuels exploration, production, transportation and marketing. This will drive energy prices higher, thus accelerating conservation and development of alternate sources, which in turn will eventually reduce our demand, and lower prices.
Nevertheless, fossil fuels will remain the dominant source of energy over the next generation, and the Middle East will continue to be critical as the dominant source of supply. The world is going to need every BTU we can find and produce over the next two generations. Geoscientists are going to be essential in that quest.
Let me share with you a sobering fact. I am now 70 years old. Based on current best estimates, about 60 percent of all the conventional crude oil the world will ever use has been found in my lifetime. About 30 percent of it has already been burned. This does not include liquids derived from natural gas or tar sands.
Our oil use continues to grow, and it will be increasingly expensive. It is now time for the professional societies, especially in the United States, to publicly emphasize the immediate need for increasing energy efficiency and conservation, especially with regard to motor fuels. Americans accomplished such efficiencies once before, 25 years ago, and we can do it again – but we must get started now!
Globalization of the E&P work force will accelerate, especially in the West, driven by retirement and mortality of experienced geoscientists, and by shortages of geoscience and engineering students and young professionals. Expanding overseas opportunities will increasingly appeal to experienced Western expatriate professionals who are willing to work overseas.
“Perfecting the Search ...”
The first phrase in this year’s convention theme is “Perfecting the Search.” Several times, I have heard young geologists say something like, “Wouldn’t it have been great, exploring for oil and gas in West Texas in 1940? It would have been like shooting fish in a barrel!”
Now, how many of you have recently looked at a 1940 electric log, or 1940s seismic records? Our predecessors were operating at the edge of technical resolution then, just as we are today. Even as new concepts or tools emerged, they were trying them out on new classes of targets, looking for a new edge, just as we do today.
That’s what underpins the extraordinary historical march of E&P technology – and will continue to do so, as long as oil and natural gas are in demand, and a free market is operating. It is essential to understand that the march of technology is not going to stop in the coming generation. Accordingly, we will always be “perfecting the search” – and never quite getting there, but steadily getting better and better in the process.
Especially in seismic technology have our achievements been simply mind-boggling. We can now see into Mother Earth at depths and with resolutions that were unthinkable just a generation ago. And now we are resurrecting, refining and re-directing older methods of passive geophysics to discriminate among parameters that elude seismic.
To be sure, substantial uncertainty still persists. We still sense Mother Earth’s subsurface features “as through a glass, darkly” -- but now the glass is much less dark. Also, remarkable advances in drilling technology have enabled us to drill deeper, farther sideways, faster and cheaper. Our drillers often make our geologists look awfully good!
Through the diverse papers of the superb technological program of this Annual Meeting, in the displayed tools and services of the Exhibits Hall, and in the many opportunities for establishing new colleagues, new business contacts and new friendships this week in Houston, you all will surely expand your horizons and advance your careers. One of the most important services of AAPG to its members, to the geologic profession, and to the E&P Industry is to facilitate meetings such as these. Over the past 12 months, AAPG has organized and sponsored or co-sponsored six other meetings such as this one, all over the world.
Elevated prices, new tools and verified concepts have enabled the recent move toward unconventional “Resource Plays” in North America. This will now expand to a global stage, as conventional International targets and fields dwindle. Geoscientists and engineers will increasingly work down “the Resource Triangle,” in large but lower-grade deposits around the world.
This means that geoscientists of the next generation will need to be increasingly multidisciplinary team players, because these “Resource Plays” will require iterative interactions among geologists; geophysicists; petrophysicists; engineers specializing in drilling, reservoir behavior and completions; economists; risk specialists; and project managers. Most of them will have to have a good working knowledge of economics and business, because these resource plays have characteristically smaller and more sensitive economic margins.
Geoscientists of the generations before mine tended to be explorers of new geography. My generation of geoscientists tended to be explorers of partly-known geologic terranes, and partly-known geotechnologies. The next generations of petroleum geoscientists will be intellectual, integrative and technological explorers. A continuing challenge for them will be to resist the siren song of computer simulations and virtual geology, to re-cultivate a close personal acquaintance with real rocks (as well as cybernetics). They will not work regularly in field boots and pith helmets, but never doubt that the successful ones will nonetheless be real explorers, still dealing, as we did, with facts and factoids, hints and hunches, dreams and disappointments.
The magic of exploration will remain, and technology will continue to provide the new tools that tantalize, reveal, inform and facilitate.
The keys to sustained E&P success will involve three elements
- An adequate supply of well-educated, entry-level geoscientists. For a variety of reasons, such young professionals will increasingly be from eastern Europe, India, China and elsewhere, but especially because young people in the West seem to be shunning math, science and especially the energy industry. Past short-sighted hiring and firing policies of the integrated companies are partly to blame, but the regrettable and increasing intellectual and social divide between American private industry and the Academy is also responsible. Unfortunately, Industry seems much more concerned about this gap than does the U.S. academic community. Nevertheless, this is a national gap that badly needs bridging. You do not find this problem in Europe, Russia, India, China and Latin America, where petroleum geoscience is a respected profession.
- Technical efficiency and business discipline. Successful companies will continue to develop and utilize state-of-the-art technology to explore, develop and produce with maximum efficiency, and to maintain discipline with respect to project evaluation and project execution.
- Available capital to carry out new energy projects. That is why short-sighted, predatory tax proposals present such a threat – they diminish investment capital, by reducing profits as well as lowering future expectations of investors. The consequence is to prevent or delay projects, reduce future supply and elevate energy prices. For a nation that prides itself on being the free-enterprise flagship of the world, the prevailing ignorance of American citizens, media and politicians about basic free-market economics is simply appalling. Somehow, we must convey the essentiality of a continuing economic system that rewards useful and intelligent enterprise, through profits that will sustain future energy investment.
“Delivering On Our Promises”
The second phrase of this year’s convention slogan is “Delivering On Promises.” An abiding theme, one that inspires and informs geoscientists and explorationists, is “The Prospector Myth” -- myth not as fallacy, but as life model -- in which the lone prospector struggles, perseveres and finally succeeds, winning fabulous wealth from a stubborn and secretive Mother Earth. The Prospector Myth is our version of “The Hero Journey,” and prospecting is indeed heroic work.
Right here today, in this audience, we have good examples of the Prospector Myth, friends we know and respect, who embody the requisite special knowledge and skill; inspired intuition and hunches; optimism, faith and courage. Petroleum explorationists like Dick Findley, whom we will honor today, create wealth and in so doing, provide the energy for the breathtaking advances in the world’s standard of living. What a contribution! What a profession!
Because considerable subjectivity and diverse uncertainties always remain, exploration invites the use of intuition, colored by optimism. We are driven to see our prospects tested. It is no wonder that explorationists tend to overestimate the value of their prospects!
But someone has to underwrite these ventures, and most investors, if they are to remain in business, must be able to measure them, objectively and consistently. Measuring uncertain E&P opportunities inevitably requires estimating, an acquired skill that our Industry has only recently gotten serious about mastering. Each opportunity must be measured, objectively and consistently, if the E&P portfolios they constitute are to deliver the results promised to investors.
And let’s face it, E&P companies did generally under-perform the S&P 500 index during the late 1980s and 1990s.
So we geoscientists can measure our own projects, or we can consign them to others, who inevitably will know less about them. In the past, these others were often our engineering colleagues, who acted as gatekeepers to the corporate portfolio, often using inappropriate parameters, and setting up disciplinary conflicts only recently healed by multidisciplinary E&P project teams, as advocated by the late Robert Sneider. Or we geoscientists can take control of our own destiny, detach from our dreams and accept responsibility for measuring our prospects.
This second option requires professional behavior from the geoscientist/prospector, carried out as two basic tasks:
- Find profitable oil and gas accumulations; this is the fun part of E&P business.
- Measure them objectively and consistently; this is the business part of E&P business.
But the accomplishment of both tasks by individual prospectors is difficult, requiring them to detach from the objects of their vision, intuition, labor and hopes, and to evaluate their ventures in the cold hard light of geotechnical fact, translated through engineering into dispassionate business economics. It is as if the individual prospector is required to possess opposed, but complimentary skills, a professional Yin-Yang nature. But such evaluations must take place, either by individual professionals, or more commonly by project teams, if evaluations are to be unbiased, enabling E&P portfolios to deliver on their promises.
Over the past decade, we have improved greatly, so that E&P portfolios commonly do now deliver their promised geotechnical performance, at least on a probabilistic scale. Of course, much of this improvement relates to new seismic capabilities; some to improved risk analysis methods, some to embraced professionalism. So now we find and develop more oil and gas fields with the money we saved by not wasting it on inferior projects. And that allows us to utilize more efficiently Investment capital, another very precious resource.
But $65 oil encourages us to lose our economic discipline, with dollars chasing prospects, opportunities in short supply, and costs skyrocketing. We’ve heard it before, in the early ‘80s: “This time it’s different.”
I remind you: Ladies and gentlemen, crude oil is still a commodity, and the nature of commodities is that they rise with demand, and fall with surplus. You can still get badly hurt in a price drop from $65 to $45.
To conclude, you will find here in Houston this next week many extraordinary examples of both the Yin and the Yang of the E&P business: the magic of searching, and the discipline of measuring. You will find them in the Exhibition Hall, in the Technical Program, and in the many conversations you will have with old friends and new contacts. AAPG is pleased to serve you the members, and the E&P industry, by facilitating or helping facilitate many such conferences around the world.
The coming years for petroleum geoscience will be global, challenging, exciting and rewarding. Our basic task, as geoscientists and engineers, is to bridge the global energy gap -- to find and develop the necessary oil and natural gas supplies to sustain living standards, buying time as the world navigates a tricky transition to an increasingly hydrogen-based economy. We should not expect that Western society will accept our warnings about energy supply and necessary conservation without suspicion and resentment. Nor will they applaud our sustaining contributions to global welfare. We alone will recognize that our task is a skilled, necessary and heroic undertaking. But like Horatius, buying time at the bridge, I have no doubt that petroleum geoscientists will be fully equal to the challenge.
ONWARD! Thank you for your attention.