BUSINESS SIDE OF GEOLOGY
By PETER R. ROSE
From Promoters to Professionals
Editor's note: Peter R. Rose, Rose & Associates, Austin, Texas, has agreed to write the Business Side of Geology column for the EXPLORER. In his role of EXPLORER columnist, Rose will also coordinate invited columns from other experts.
Today, most petroleum explorationists acknowledge two professional responsibilities:
But before about 1965, the assignment of risked economic value to drilling ventures mostly used "rules of thumb" that were based on individual experience. Expectably, such pragmatic measures varied widely among provinces and companies (and even between offices!).
Salesmanship thrived -- but often the stake-holder suffered.
The subjective nature of geology and intuitive judgments involved in prospect ranking together encouraged a prevailing attitude that, somehow, geoscientists just weren't supposed to know much about prospect economics.
Geoscientists were expected to be optimistic, whereas engineers became economic "gate-keepers" -- both self-fulfilling prophecies.
Two pioneering geoscientists -- Bob Megill and Ed Capen -- were instrumental in changing all that. They disseminated and developed concepts and tools that laid the foundation by which geoscientists could finally begin to take professional responsibility for objective representation of the value of their prospects as business ventures.
Robert E. Megill (BS degree in geological engineering from the University of Tulsa) worked for Carter, Humble and Exxon from 1941 to 1984, and early in his career he showed great talent for understanding petroleum economics and statistics and using them perceptively.
During the 1960s Bob began teaching Exxon's geotechnical staff about prospect economics, and later about risk analysis of exploration ventures.
In 1973, Exxon gave Megill permission to publish An Introduction to Exploration Economics (Pennwell 1973, 1978, 1988). Subsequently, Megill published a companion volume, An Introduction to Exploration Risk Analysis (1979, 1984). Both books became industry best-sellers.
Upon retirement from Exxon, Megill became a sought-after consultant -- but he always made time for AAPG service, writing a very popular column for the EXPLORER for eight years, "The Business Side of Geology." He also wrote three key articles for AAPG's best-selling The Business of Petroleum Exploration (1992).
Beginning in 1984, Megill helped design and team-teach the popular AAPG school, "Managing and Assessing Exploration Risk," together with Ed Capen and myself. A gifted teacher and exceptionally clear writer, Bob Megill taught thousands of explorationists to value their prospects correctly, and to portray them in economic context.
Bob retired again in 1990. He and his lovely wife, Margie, live in Kingwood, north of Houston.
Ed C. Capen (BA in Math/Physics from the University of Texas at Austin) worked for Arco from 1957 to 1992. He started as a research geophysicist, where he soon sensed that the repeated trials and high uncertainty so characteristic of petroleum exploration made statistics an under-appreciated, but very powerful tool.
At Arco he took part in a series of highly original, insightful, applied research projects, on competitive bonus bidding, economic yardsticks, dealing with uncertainty, capital budgeting and probabilistic reserves estimating, among others. Many of these found their way into SPE publications.
AAPG published one of Ed's very best in The Business of Petroleum Exploration (1992), where he presented all the statistical formulae involved with correctly estimating prospect reserves.
Capen's 14-year team-teaching of AAPG's "Managing and Assessing Petroleum Risk" gave the school many insightful exercises illustrating uncertainty, risk, bid strategies and value of information. Recognizing that the course was about making money in the E&P business, it was his idea for students to use their own pocket money to participate.
An innovative, dynamic teacher, Ed made learning fun -- and challenging, for he did not suffer fools gladly.
From this corner, Ed Capen has been the most original, rigorous, perceptive and influential authority in the burgeoning field of petroleum economics and risk analysis. In 1995, AIME-SPE recognized him with its coveted J.J. Arps Award, for Significant Contribution to Petroleum Evaluation.
Ed is now retired; he and his charming wife, Betty, divide their time between Telluride, Colo., and the Texas Hill Country.
It is no exaggeration to say that Bob Megill and Ed Capen laid the foundation that allowed the petroleum geoscientist to move from promoter to professional. We stand on the shoulders of the pioneers who have gone before, enriched and inspired by their gifts.
Thanks, Bob; thanks, Ed.