William Donald (Donnie) Harris III, President and CEO, Forrest A. Garb & Associates Inc.
Growing demand for oil and gas during the most recent 20-year economic expansion cycle has been a major driver of our industry. We have come to expect that there will always be demand that cannot be met without constant development drilling and exploration. Major technology advances have been driven by this paradigm.
Deflated gas prices. Developing non-conventional gas plays like the Barnett, Marcellus, Woodford, Eagle Ford, Fayetteville and Haynesville Shales have contributed to an oversupply of gas in the US, and this, coupled with the 2008–2009 economic recession, has driven gas prices down. The development of these new plays requires significant investments and operating expense. As gas prices bottom out, these plays are not economically robust. The gas price bubble has deflated, and gas prices will stay low until the oversupply is corrected. The US Energy Information Administration has said it expects US gas consumption to decline through the remainder of 2009 and 2010. This decrease in demand will also contribute to lower gas prices.
With 2008’s exaggerated high gas prices, did E&P companies go out and spend money on leases that they are now obligated to drill on or lose? Is this contributing to poor decision making that is forcing companies to generate the oversupply of natural gas when, under normal circumstances, they would shut in these reserves for development at a later date?
Oil undersupply. Back in the 1990s, the founder of our company, Forrest A. Garb, predicted that the supply and demand curves for oil would cross in 2003 and lead to an undersupply of oil and increasing prices. This was before the emergence of China, India and other developing nations as major energy consumers. The unprecedented demand for goods and services pushed the intersection of the supply and demand curves to an earlier date. Even if we treat the recent $140/bbl spike as a speculative aberration, we have recently seen a steady increase in oil prices. And oil prices will continue to rise as worldwide economic recovery continues.
Employment. The economic crisis has not skipped over the oil and gas industry. We at Forrest A. Garb & Associates have taken on a larger workload instead of taking on new staff. Improving productivity without sacrificing quality is always a challenge. We have seen other companies trim back and also increase the workload on the remaining staff.
Some companies have seen a reduction in their workload because clients are just not asking for the work to be done or they are doing it in house. Service companies have reduced their rates and prices to retain clients. Meanwhile, exploration and production companies have cut back on their drilling plans.
P2, P3 reserves reporting. New reserve reporting options, as specified by the US Securities and Exchange Commission, will open up the reporting of probable and possible reserves in addition to the customary reporting of proved reserves. Companies that are not looking to access outside sources of funds will probably continue to only report the proved reserves category because of the expense associated with the additional manpower for reporting other reserve figures and the perceived exposure of claiming resources that are not certain. Companies that are looking for outside funds and investment will use the expanded reserve reporting to showcase the upside potential of their company. 
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THE AUTHOR
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William Donald (Donnie) Harris III is CEO and President of Dallas-based Forrest A. Garb & Associates Inc., which he first joined as president in 1998. 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 holds a BS degree in petroleum engineering from Texas A&M University and an MBA from Southern Methodist University.
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