What the industry expects in 2007

Reasons abound to be bullish on supply

Dr. D. Nathan Meehan, President, CMG Petroleum Consulting Ltd., Houston

 Daniel Yergin once said, “This is not the first time we have run out of oil. It is more like the fifth.” But today’s speculation and discussions about “peak oil” and when (not if) we really will be unable to meet energy demand are no longer rejected out of hand by those of us who are bullish on future oil supply. In some ways, the actual reserve numbers are not as vital to our immediate concerns, as are the productive capacities of existing and developing fields.

 Inevitably, some large blocks of oil or gas supplies will be removed from the market place, potentially with little or no warning. This can be due to natural disasters, political decisions or even terrorist actions. The fact that the remaining hydrocarbon producers have eight or 80 years of remaining reserves matters less in such cases than how much production can be increased in the near term. I believe that there remains a significant premium in current oil prices reflecting this concern. This premium is likely to remain until world productive capacity exceeds demand by at least an additional 1-2 million bopd.

 On the other hand, everywhere I go, we find a lot of ways to add oil and gas reserves and production. The problem is that we are not finding the cheap solutions of the past. One reason is that, as an industry, we previously failed to gather the data we ultimately need to push oil and gas recoveries up to technically achievable levels. This was, in many cases, not avarice or ignorance but a lack of reliable tools to monitor where injected fluids went, and identifying the location and quantities of remaining oil.

 New tools. Reservoir monitoring technology is where the most exciting advances are appearing. 4D seismic continues to mature, but a number of extraordinary technologies appear to be coming together. Microseismic monitoring has been commercialized for fracture mapping and, to a lesser extent, in steam flood monitoring; the use of this tool in monitoring fluid displacement projects (particularly in naturally fractured reservoirs) finally appears to have legs. While the reliability of permanent downhole pressure gauges has improved, the fiber optic solution for pressure monitoring and distributed temperatures offers a continuous glimpse of the reservoir not seen previously. Integration of wellbore measurements with intelligent well completions has finally become a reality instead of a science fair project. The integration of reservoir monitoring technologies to optimize production, recoveries and economics will differentiate the starters from the benchwarmers.

 Further lessons learned. Another reason that I remain bullish is that I have had a chance to see and learn more things. This year, our projects have taken our team to Egypt, Sudan, Equatorial Guinea, Kenya, Kazakhstan, Ukraine, Russia, Tanzania, United Arab Emirates, Saudi Arabia, Indonesia, Kuwait, Argentina, Colombia, Qatar, Oman, Canada and Mexico. We have managed to do projects in several more countries, and, increasingly, we see operators who are willing to do whatever it takes to access their oil resources and translate them into producing reserves. I am particularly enthusiastic about the gas projects that are developing and will commercialize relatively small gas discoveries in parts of the world that desperately need local energy.

 Talent in short supply. There is no shortage of capital for these ideas. There may be a shortage of great ideas, but I am more troubled about the shortage of talented people. Here is a troubling thought for the day. I met with a petroleum engineer with three (3!) years of experience working for a major oil company. He wanted advice about a career change to another firm, where his salary and bonus would be more than twice the current entry level salary for petroleum engineers. This sort of competition for young talent says we remain desperate to solve the personnel demands brought on by high oil prices. Remember those articles of a few years back, in which people opined as to whether or not they would recommend petroleum engineering to an entering freshman today? While that discussion barely seems relevant, we do face big challenges in developing young talent. The problems of recovering the most inaccessible hydrocarbons require combining state-of-the-art technology with experience in difficult reservoirs.

 If our sharpest young minds continue to leave major oil companies after three years, who will make reservoir monitoring and production optimization a reality?

THE AUTHOR
	D. Nathan Meehan is President of CMG Petroleum Consulting, Ltd., a Houston-based petroleum engineering consultancy (www. reservoirengineering.com). He holds a Ph.D. in petroleum engineering from Stanford University and is a licensed PE in Texas, Louisiana and Oklahoma. A past SPE Distinguished Lecturer, Dr. Meehan is the recipient of numerous awards, including the Lester C. Uren Award for Outstanding Contributions to Petroleum Engineering Technology. He has authored scores of articles and a book, and has served as a director for service companies, oil companies and SPE. Dr. Meehan worked 24 years at Union Pacific Resources and was VP, Engineering, at Occidental Petroleum. While best known for work in horizontal wells and hydraulic fracturing, his consulting has focused primarily on field redevelopment and optimization. He is the 2006 recipient of the DeGolyer Distinguished Service Medal.