What's Ahead in 2005

High prices boost consultants' work loads

W. D. (Donnie) Harris III, CEO, Forrest A. Garb & Associates, Inc., Dallas

I started last December's article by stating that our industry always seems to be on an upswing or a downturn. This year, prices are definitely on the upswing; but, as usual, service company work has lagged behind the increase in prices.

If you pull out your December 2001 copy of World Oil, you will see where I said that, in the long term, prices for oil and gas should climb, as we reach the point where world demand overtakes global production, somewhere between 2003 and 2005. I think we have reached that point in history. Futures prices will likely maintain current levels, with little drop in the near term. The high demand for oil and gas, along with terroristic possibilities and political uncertainties, will support current high oil prices, but the pinch between supply and demand will be most important.

At Forrest A. Garb & Associates, we have seen an increase in spending across the board. The increase has been primarily in the rejuvenation of studies involving prior projects that were put on hold, due to unfavorable economics. These projects will proceed only with the increased pricing, and they could fall by the wayside quickly with any substantial drop in oil price. A continuing forward march in technological developments will also support these rejuvenation efforts, as well as new ventures.

We have increased our staff and resources to meet this growth in demand for our services. This has been difficult, as the industry is beginning to show a shortage of experienced technical personnel. The ratio of technical personnel leaving (retiring from) our industry vs. the influx of college graduates is 3:1. The rate at which petroleum professionals are entering the industry from academia is on the rise. However, the gap in experience will continue to plague the industry for years to come. This lack of qualified personnel will also begin to drive salaries higher.

Service companies have not seen a larger number of big new projects in proportion to the jump in oil prices, but they have seen an increase in the number of smaller projects. These firms' rates are increasing, as the demand for their equipment and services has increased.

The same companies have also seen a shortage of steel, causing the price for tubulars to increase dramatically over previous levels. This should level out, because significant quantities of tubulars are coming in from China and more are now beginning to come from Russia. Once we have revisited previously uneconomic projects, and the cost of goods has stabilized, there should be an increase in the dollars available for research and development in the industry.

Forrest A. Garb & Associates has seen a significant increase in the opportunities to buy and sell properties. The investment companies are using high oil prices to liquidate assets. These assets are selling at a premium, showing that buyers have confidence that the prices will maintain at, or near, current levels. We feel that this will provide plenty of work for the reservoir consulting firms that exist today.

THE AUTHOR
	W.D. (Donnie) Harris III joined Forrest A. Garb & Associates, Inc., as president in August 1998, and he now serves as CEO. He is responsible for the firm's daily operations and the supervision of engineering projects. Mr. Harris began his career with ARCO Oil & Gas as a reservoir engineer. He also was a vice president at DeGolyer and MacNaughton, where he prepared and supervised engineering and reserve studies, plus appraisal reports for fields in many countries. He holds a BS degree in petroleum engineering from Texas A&M University and returned to school in 1998, earning an MBA from Southern Methodist University. Mr. Harris is a member of SPE and is a registered professional engineer in Texas.