Prices are up, and company coffers for the most part are brimful -- but if you peek below the bottom line just a tad, you'll discover the IOCs are staring smack in the face of what Scott Tinker refers to as a significant "trilemma."
"IOCs" refers to international oil companies, and Tinker's "trilemma" refers to the fact that their three greatest assets -- reserves, talent and technology -- are drying up.
The reserves situation alone is cause for major anxiety.
"Only four IOCs are included in the top 20 oil companies in the world in terms of reserves," said AAPG member Tinker, director of the Bureau of Economic Geology and State Geologist of Texas. "The IOCs own less than 10 percent of the world's conventional oil reserves, while the NOCs (national oil companies) own more than 90 percent.
"This helps explain mergers, because companies are competing for access to reserves that are limited by the countries that control them," Tinker noted. "The IOCs are forced to explore on Wall Street, which has become a mature province."
In the realm of research, the IOCs used to be the kingpins. But with perhaps a couple of exceptions, their once-esteemed research labs are long shuttered. The bulk of the research and technology investment today is through the service companies, and much of the research is incremental.
This situation in large part can be blamed on Wall Street, which doesn't care for oil companies investing in long-term research. It's all about "what are you delivering this quarter?"
Refill the Pool
The industry's talent pool peaked in 1982, Tinker noted. Commodity prices were at lofty levels, and universities had been cranking out scads of geology and petroleum engineering majors who were quickly snapped up by the companies.
New-hires, in fact, had become accustomed to sign-on bonuses and company cars.
The party ended abruptly with the mind-boggling freefall in prices in 1986. In short order, 700,000 of the 1.5 million people comprising the industry talent pool found themselves jobless and, in numerous instances, homeless as well.
Just as the industry, the markets and the universities overreacted when the demand for talent escalated between the 1973 Arab oil embargo and the ‘82 peak, another overreaction occurred in the opposite direction after the big bust.
"University enrollments are now at 1965 levels in geosciences and petroleum engineering," Tinker said. "But the downward trend is countered in China and India, where we see enrollments in science and engineering across the last decade continue to increase -- and probably more significant than the trend is the magnitude.
"The natural science enrollment in China is about 1.6 million kids," Tinker noted. "Our numbers are in the 20,000 to 40,000 range, and an ever increasing percentage of student enrollments are non-U.S."
In fact, he said NOCs from Latin America, the Middle East and the Far East are approaching U.S. schools with great passion to put partnership programs in place to educate their students in the United States and return those students home.
One likely direction the IOCs are anticipated to take going forward is to focus on the kinds of resources they can readily access, which largely will be unconventional resources, e.g., shale oil, heavy oil, coalbed methane, shale gas, gas hydrates.
"There's a huge number of molecules in these things, especially in North America," Tinker noted. "We're leading the world in the development of the unconventional natural gas industry.
"The technology, exploration and exploitation strategies are different for these things," Tinker said, "so we need to train a whole new talent pool, and it will require other things like new R&D.
"This says there's great opportunity for people coming in to have a long-term future," he stated, "as unconventional oil and gas and coal resources transplant conventional over the next several decades."
Next Steps
In fact, the transition appears to have begun as some of the major companies already have succumbed to the lure of such plays as the Barnett Shale and Canadian tar sands.
Implementing solutions to the "trilemma" facing the industry will entail concerted effort among a number of groups, according to Tinker, who cited a few of the steps they must take:
- Universities need to continue to develop fundamental research in energy, and this will require some partnerships. There's a need to balance what's going on in the Middle East, Far East and the western world in terms of student enrollments -- and not overreact to the talent demand.
These institutions should make enrollment retentive standards tougher and make it a privilege to get into the geosciences, petroleum engineering and other energy fields.
- Industry must find the resolve to ignore Wall Street's reaction to investment in basic research. It must make a commitment to research -- and also recognize universities are the seed crop, where they need to invest in good and bad times.
- Government must invest in things industry won't invest in yet -- and also support programs that drive commercialization of existing R&D technology.
Also, the government must work to bring respect and allure back to science and engineering in the United States.
- Professional societies have a role in coordinating the global message about energy. These societies may be able to determine the best way to get the message across.
"This is an exciting industry, but people don't understand what it offers," Tinker said. "Kids (and many adults) think renewables can replace fossil fuels in the next decade, and they can't, so we must get people educated.
"There's a great story to tell, and the industry needs a story teller," he added, "but it can't be one of its own."