DIVSION COLUMNS ARCHIVES

By J. MICHAEL PARTY
DPA President

Or Is That Disinformation?

It's True: Misinformation Abounds

DPA Web Site

We have an obligation, as good stewards of the land, to find the truth, not the "made-up truth," whether it is favorable to our industry or not.

On a recent visit to a bookstore I came across a book titled 1001 Dumbest Things Ever Said. After reading several of the quotes, I realized that some of the worst statements are from educated individuals, many of whom hold top government positions.

Here are a couple of the more memorable quotes (I will not give the author so as not to politicize this article):

"Democracy used to be a good thing, but now it has gotten out of hand."

Or this one: "If we do not succeed, we run the risk of failure."

The statement that gets the award and should stop and make us all think is: "There are two kinds of truth. There is the real truth and there is the made-up truth."

With regard to some of the complicated topics like environmental issues, reserve evaluations and oil pricing, I worry that some people are using made-up truths in debating these subjects. I want to spend this month's column talking a little about these issues.

Let's start with the environmental issue.

The Feb. 14, 2005 Wall Street Journal article "In Climate Debate, The 'Hockey Stick' Leads to a Face-Off" referred to a graph that was published four years ago in a United Nations report.

Stephen McIntyre, retired Canadian minerals consultant, began looking at the data that makes up this earth-shattering graph, which is one of the pillars in the case for man-made global warming, and concluded that the data used and the way the graph was prepared are flawed.

Outside of some erroneous data, which the authors of the hockey stick graph have reissued, the real problem is that the mathematical technique used is prone to generate hockey stick-type graphs.

Statistician Francis Zweirs of Environment Canada, which is a government agency, agrees with McIntyre.

Here is the clincher: The lead author of the report, Michael Mann, says "it is a campaign by fossil fuel interests to discredit his work." To quote Mann, "It's a battle of truth versus disinformation."

As a footnote, Mann has been asked by several groups to show all of the data and algorithms he has used to support his theory. He refuses to do so. "Giving them the algorithm would be giving in to the intimidation tactics that these people are engaged in," Mann says.

I thought one of the rules of science was to do the research and then have your data and methods scrutinized by your peers for validity. With this method of scientific research, bad research would never be discredited!

It was a great article and highlights that, as a true scientific organization, it is encumbered upon us to join in the scientific discussion on major issues. We have an obligation, as good stewards of the land, to find the truth, not the "made-up truth," whether it is favorable to our industry or not.

Next, let's address the subject of reserve evaluations -- the art of PREDICTING reserves before they are produced.

Companies put a lot of effort into this endeavor because of the effect it has on the company's bottom line. It is our responsibility to make sure that the people doing the reserve evaluations are qualified from a technical and an ethical aspect. As DPA Vice President Dan Tearpock pointed out, a simple matter of not taking into account the dip of a producing zone can lead to an erroneous data point on its thickness. This is why the DPA is looking into the certification of Qualified Reserve Evaluators with the Society of Petroleum Evaluation Engineers (SPEE).

Simple factors, such as a standardized way reserves are booked, can clear up areas of confusion.

Here is a bit of trivia on reserve estimations: The SEC stipulates that evaluations be based on a snapshot of oil prices at the companies' year-end (Wall Street Journal, Feb. 14, 2005). This can affect reserves, since you cannot book reserves that cost more to extract than the price of the commodity (i.e. heavy oil, high volume water wells and stripper wells). Wells or projects that were economical all year and have reserves booked could have to be written down if, at the end of the year, there is a significant drop in the price of oil and gas.

This industry is always searching for cash, almost as much as politicians do, and we can't afford to give the perception that there is something unethical in the way we book reserves. We need to take the lead on this issue as an industry, and not force the government to mandate laws to protect OUR investors.

The DPA is putting together a CD on energy facts, with the effort spearheaded by Bob Shoup.

Oil pricing is a complicated issue, and this CD will help each of us better understand this subject ourselves, as well as being able to explain pricing and other energy facts to non-industry individuals.

Please watch for information about this CD to be posted on the DPA Web site in early fall.

I want to leave you with this one final quote:

"Drill for oil? You mean drill into the ground to try and find oil? You're crazy."

The speaker? A worker whom Edwin L. Drake tried to hire on his project to drill for oil in Titusville, Pa., 1859.

Go crazy and find that next big play.