WORLD OIL SPECIAL REPORT

Realistic appraisal of technical strengths ensures competitiveness

D. Nathan Meehan, Vice President, Engineering, Occidental Oil & Gas Corp., Houston

As we review this year, pre-Sept. 11 events seem to have lost some relevancy. We look back to find meaning where there is none. We seek more order than is present. We say, "It’s a small world," when we mean that the entire globe, and its population, are tightly interconnected by relationships, commerce and technology. It is smaller today, as all civilization goes forward in the aftermath of the Sept. 11 events. The future of commodity prices, technology, etc., seems even less predictable as we enter a new world.

The year began with very attractive product prices, particularly for natural gas. As usual, our industry responded with unbridled enthusiasm. Untested rigs with green crews filled the marginal demand to drill wells at a breakneck pace. Efficiency suffered, as did contractor safety performance. However, everybody was making money. Didn’t we have a bumper sticker a few years ago, which said that we promised not to screw up the next oil boom?

However, the inevitable cure for high prices is low prices, and natural gas rates responded to decreased demand and more-than-adequate supplies. Drilling activity and rig utilization are sure to follow that trend. The large increases in oilfield product and service costs experienced over the prior years have only begun to shrink. While it is unclear how much these costs will decrease, they will drop. As Yogi Berra would say, "It’s déjà vu all over again."

One of my former CEOs used to say that if you wanted to shoot a goose, you had to aim at the bird, not at the flock. Can any company be "first in class" in exploration, acquisitions, and exploitation? All serious competitors will be using fundamentally comparable technology in most instances. So, what differentiates top performers from the herd? We joke that "it’s better to be lucky than good," but few seriously believe that oil companies apply the right technologies equally well, even as a rough approximation.

It is vital that we realistically appraise our technical and personnel strengths, to leverage them as appropriate and supplement them as necessary. This is difficult, because hard measurements are difficult to come by for our own companies and our peers. We can not rely solely on output-based financial and performance results that are dominated by external factors. Input-based measures that consider how well we plan, organize and make decisions are difficult to capture and appraise.

It is often more difficult to appraise our competitors’ and partners’ capabilities, and where we stack up against them. The potential difficulty of this assessment doesn’t excuse us from attempting it. However, we rarely dominate important technologies, and our largest problems are so complex that we will approach them with a wide range of skills and experience.

"One of my former CEOs used to say that if you wanted to shoot a goose, you had to aim at the bird, not at the flock."   – Nathan Meehan

Consider this example – most significant oil fields either have a water drive or are candidates for improving recovery via some sort of fluid displacement. As these fields mature, injected fluids and aquifers tend to sweep the best connected, highest permeability portions of reservoirs.

The difficulty of improving volumetric sweep efficiency and displacement efficiency is part of the conformance problem. Poor conformance problems include low oil rates and recoveries, excessive water production with correspondingly increased operating costs, and difficulties in applying improved recovery methods. Inadequate conformance by costlier injectants, such as CO₂, is far more expensive.

Techniques to improve conformance issues include near-wellbore and reservoir characterization approaches. We monitor injection and production profiles, and attempt to selectively shut off or stimulate wellbore portions to redirect fluids. Near-wellbore improvements from stimulations, and horizontal and multi-lateral wells, attempt to improve conformance and accelerate the reservoir’s processing speed. Improved reservoir characterization results in models that help us understand where the oil remains, and what the consequences of operating and development decisions will be.

Is any one company the clear leader in solving conformance problems? Of course not, but that does not imply that all are equally capable. We address conformance issues with a variety of skills and experiences, and have much to learn from others. The conformance problem is similar to all remaining, significant technical problems, in that solutions will come from a variety of disciplines and sources. The opportunities between average and "best in class" will be very substantial.

Finally, Oxy has brought a great deal of focus to its oil and gas operations, with significant domestic acquisitions and divestiture decisions that rebuilt the company’s core around a few major assets with substantial exploitation opportunities. These domestic assets complement our strengths and fund our growth opportunities.

The Middle East is one of our major areas for future growth in exploiting current assets, exploration, mature field redevelopment, EOR/IOR and business development. We have many friends there, both as a company and as individuals. We are optimistic and excited about our futures there. I am personally quite confident that we will prosper.