O&G US 4

www.ngoilgas.com • Q4 2008

CLIMATE OF CHANGEWith ConocoPhillips’ CEO JIM MULVA

PLUGGING THE CAPABILITY GAPWith BP’s head of production ANDY INGLIS

EXPLORING THE POSSIBILITIESWith Devon Energy’s RICK MITCHELL

MORE IN THE TANKWhy PRESIDENT OBAMA needsoil as part of his energy mix – andhow the right policies could unlockAmerica’s hidden potential Page 28

BACK IN IRAQCan the IOCs finally strike gold inthe troubled Arab state? Page 132

COVER NGO+G v3:dec07 09/12/2008 16:14 Page 1

OleumTech.indd 2 9/12/08 10:48:13

OleumTech.indd 3 9/12/08 10:48:29

EMC.indd 2 9/12/08 10:49:02

EMC.indd 3 9/12/08 10:49:03

Stork.indd 4 9/12/08 10:49:33

Stork.indd 5 9/12/08 10:49:37

Demand the results of a Clearer PictureMULTI-COMPONENT SERVICES BY KINETEX

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At Kinetex, we specialize in gathering multi-component seismic data for the resource industry. 3-C Full Wave Technology generates signifi cantly higher resolution images with lighter equipment in less time. This, in turn, allows E&P companies to make faster, better decisions that ultimately lead to higher returns. It all starts with the use of a single-point digital sensor. Developed by our industry partner, ION, the superior single-point receiver helps capture the entire seismic signal in any acquisition environment. Services available to clients include seismic project planning, front end preparation, data acquisition, process and interpretation.

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FROM THE EDITOR

7

“Environmental protection isimportant, but cannot come at theexpense of handcuffing domestic oiland gas production” Governor Brad Henry, Interstate Oil & Gas CompactCommission (page 28)

“It doesn’t matter how much supplythere is if there is no access to it. It isimperative that these resources areexpanded” Under Secretary Bud Albright, US Department ofEnergy (page 46)

“The financial crisis has triggered asignificant reduction in the price of oiland gas. We need to drive expensesdown to continue our activities” Bruce Vincent, Independent Petroleum Associationof America (page 60)

MATCHING ACCESS WITH CAPABILITYThe US is blessed with some of the most extensive natural resources in theworld – but what use is that if we are unable to extract them?

THE BIG STRATEGIC ISSUE for all oil and gas companies is matching the

earth’s abundant natural resources on the one hand, with the capability

– the technology, skills, know-how and willpower – required to bring those

resources to market on the other. It’s a tough task. Oil and gas reserves

are increasingly found in some of the most inhospitable operating environments

on the planet; environmental concerns are placing additional pressures on pro-

duction teams; and falling prices are making profitable returns harder to come by.

But as it has done countless times before, the industry is rising to the chal-

lenge. In this issue, we hear from some of the leading figures in the oil and gas in-

dustry on how they are addressing the issues of capability and access in very

different ways – through people, processes, policies and technology.

For example, Andy Inglis is CEO for Exploration and Production at BP, the

fourth-largest company in the world by revenue. Yet even an organization as suc-

cessful as BP faces challenges in attracting and retaining the best talent. For Inglis,

plugging the capability gap requires leadership and innovation, as well as tech-

nology. “Our industry needs the smartest engineers and geoscientists,” he says.

“Increased computing power and better technology will also make a huge contri-

bution, but they are not a magic bullet. With capability, it is people who make the

difference.”

In addition to identifying and nurturing the right people and technologies, im-

plementing a common-sense approach towards energy policy will also be essential

in ensuring America makes the most of the resources at its disposal; both oil and

gas have a vital role to play in US energy security, and in the rush to (quite correctly)

embrace greener technologies and a more energy efficient approach to 21st century

living, should not be abandoned completely. We hear from ConocoPhillips CEO JimMulvaon why his company is taking a leadership role in energy policy development,

and look at what an Obama presidency is likely to mean for the oil and gas industry

as a whole. Is the ‘change we need’ going to be a change for the better?

And as the Bush administration finally prepares to pack its bags and take its

leave of office after eight years at the helm, we also have an exclusive interview

with outgoing Under Secretary for Energy, Bud Albright, who provides some fas-

cinating thoughts on what the main oil and gas challenges will be for his succes-

sor. He doesn’t pull many punches.

Increased access and enhanced capabilities: put like that it sounds so simple,

but we all know the challenges ahead. Clarity of thought, ingenuity and the will to

make the correct decisions for both the short and long-term will be essential as we

move forward.

Ben Thompson

Senior Editor

EDITORS NOTE NGO&G4:dec08 09/12/2008 16:58 Page 7

Arkex.indd 8 9/12/08 10:51:05

CONTENTSFEATURESQ4 2008 www.ngoilgas.com

28 A new dawn for oil?Given his promise to free America fromwhathe calls “the tyranny of oil”, exactly whatdoes the president have in the pipeline interms of energy policy?

46 Access deniedSupply and demand challenges are reflected in

fluctuating oil prices. In an exclusive interview,

Bud Albright, Under Secretary for Energy, ex-

plains how and why the US needs to develop its

own resources

82 The changing of the guardThe retirement of the babyboomer generation is

only part of a far bigger challenge facing the indus-

try: that of plugging the capability gap. Andy

Inglis, CEO of BP Exploration & Production, out-

lines how tomanage the talent crunch

36Achieving energy and climate securityIn an industry not famed for its eco-credentials,

ConocoPhillips CEO Jim Mulva is something of a

paradox: an oil industry executive who’s a champion

of carbon controls and the climate change challenge

132Back in IraqThe largest unexploited

oil reserves in the world

could be back on the

agenda for international

oil companies.O&G looks

at why, after a 36-year pe-

riod of expulsion, IOCs

are finally set to return to

troubled Iraq

28

9

CONTENTS NGO&G4 :dec08 9/12/08 16:18 Page 9

KAmbi.indd 10 9/12/08 10:51:32

82

52

70

52 Drilling deepRick Mitchell explains why his role at Devon

Energy has the Indiana Jones factor

60 Offshore opens upAccess could changeexploration andproduction

62 Exploring new ideasWhat will the next generation of oil and gas

exploration techniques look like?

66 Investing in infrastructureRobert Jones explains how the Keystone

Pipeline project is progressing

70 Finding the value in research forthe pipeline industryWithGeorge Tenley, President of the Pipeline

Research Council International

74 Fighting backBob Herbert examines the huge cost of

corrosion

78 Pipe dreamsBud Fackrell reveals plans for the largest

private construction project in the US

90 Attracting top talentMahesh Puducheri on building a long-term

talent pipeline

96 Rebalancing the workforceWhere are all the 30-year-old CEOs?

ASK THE EXPERT

CONTENTSEXPLORATION & PIPELINES11

95 Johnathan Johnson,Fircroft Group120 Magnus Wallmark,SWE-DISH Satellite Systems130 Paul Gregory,OleumTech Corporation138 Frank Lloyd, SMU Cox Schoolof Business


EXECUTIVE INSIGHT

58 Neil Dyer, ARKeX64 Cliff Berry, Centek76 Bjørn Jalving, Kongsberg80 John Muncaster,

Polyguard Products98 Christopher Wood, AC Engineering

“The goal is to deliver thesame level of serviceseverywhere, to improvecollaboration inside theorganization.”Patrick Héreng, CIO, Total

90

100

CONTENTSPEOPLE, SAFETY & TECHNOLOGY

110

12

100 The importance of safetyHugh Williams, Chief Executive of the IMCA,

debates the issues

104 The price of oilWho is to blame for record oil prices?

109 A new era in offshore crewsupplyBy Philip Strong

110 An industry going high-techO&G catches upwith Stephen Brand at

ConocoPhillips

114 Mission criticalPatrick Héreng CIO of Total explains how the

oil giant plan to upgrade their entire IT infra-

structure

122 Stretching your dollarWhymesh networking supports the growing

momentum of wireless broadband

124 Producing smarter fieldsWhy it pays to knowwhat your wells are

producing, with Shell’s Ron Cramer


CGG1.indd 13 9/12/08 10:52:07

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Director of Projects ADAM BURNS

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The Next Generation Oil and Gas Summit is athree-day critical information gathering ofC-level technology executives from the oil

and gas industry.

A Controlled, Professional & Focused Environment

NG O&G ’09 is an opportunity to debate, benchmark andlearn from other leaders. NG O&G ’09 is a C-level event

reserved for 75 participants that includes expert workshops,facilitated roundtables, peer-to-peer networking, and

coordinated technology meetings.

A Proven FormatThis inspired and professional format has been used byover 100 R&D executives as a rewarding platform for

discussion and learning.

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Find Out MoreContact NG Oil & Gas at 212 920 8181

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CREDITS NGOG:dec08 09/12/2008 17:00 Page 14

Prosep.indd 15 9/12/08 10:52:33

16 www.ngoilgas.com

16UPFRONTP18 Top 10: America’s Largest OilfieldsP20 The Five-Minute ExecutiveP22 The Burning IssueP27 Around the World in 80 Days

Energy stocks have taken yet another

beating as oil and natural gas prices

tumbled and analysts drastically cut

expectation for 2009, after a warning

from the world’s largest oil services company.

Analysts reported that any oil and gas com-

panies hoping to rely on international demand

to see them through the US slump should cut

back as demand weakens globally.

As world economies begin to grind slow-

ly into recession, demand worries have shot

sky high as stocks and shares plummet – nat-

ural gas fell six percent to a 14-month spot low

and oil prices neared four-year lows.

TheAmericanStockExchange indexofnatural

gas companieshas fallenmore thaneightpercent,

dealingaterrifyingblowtothe industry.Amongthe

oil producers, companies with refining arms did

better thanthosewithoutbecauserefiningmargins

riseascrudepricesdrop.ExxonMobilandChevron

were both downby just under two percentwhere-

asDevonEnergy fell by sevenpercent.

PRICES FALL& STOCKSTUMBLE

UPFRONT NG O&G4_FINAL:12june 9/12/08 16:06 Page 16

“It’s become nowmore the question of the

onslaught of negative news here, pointing to a

deeper and deeper recession,” said BMO

Capital Markets analyst, Jim Byrne. “At

$40/$45 oil you’re going to see a significant

pullback in activity, which in our view will ulti-

mately lead to recovery, but it appears that

we’re going to go through a little bit longer

downturn than anticipated.”

Worrying times indeed aswe start 2009, but

it is vital to stand strong and brace for theworst.

NEWCONCEPT FORPROCEDUREMANUALSwritten procedures. It is imperative that pro-

cedures are well-written.

Procedures need to be clear to the user.

They need to be as brief as practicable, yet

detailed enough so that the user under-

stands what is intended. They need to be

well-organized. There should not be any con-

flicts or contradictions.Theability tomis-read

a procedure should be minimized. There

needs to be a sensible way to include large

items, such as tables, drawings andpictures.

Electronic procedures provide huge ad-

vantagesover hard copy, papermanuals. Use

of color, which is extremely expensive in hard

copy, is free. Hyperlinks can give instant ac-

cess to related information and regulatory re-

quirements. With electronics, access to all

procedures canbe greatly enhanced.Making

revisions ismuch easierwith electronicman-

uals, and it is easy to archive complete man-

uals that were in effect on any given date.

All these features, and more, are incor-

porated into PRO-cedures.

You know the situation – the gov-

ernment inspector asks a ques-

tion, and you know that the

information is covered and docu-

mented somewhere in the company – but

where? PRO-cedures is a method of writ-

ing procedures that captures and pre-

serves your company’s body of

knowledge, organizes it and provides a

way to find specific topics quickly, even if

the user is inexperienced.

PRO-cedures isstate-of-the-art. Ithelps

to ensure compliance with regulations and

incorporates the best ideas frommany dif-

ferent sources. It canbeused inahard copy

format,but its featuresreallystandoutwhen

used electronically. It includes techniques

thatminimize risk and liability.

As companies are scrutinized ever

more closely by outside parties, good pro-

cedures are becoming more important

thanever before. The actions of employees

and contractors must conform with the

NUMBERCRUNCHING

Since then priceshave dropped by over

to around $43per barrel

60%

Average gasolineprices have fallen to

the lowest sinceMarch 2004

$1.75

In July 2008, oilprices reached arecord high of

per barrel

$147

17www.ngoilgas.com

In Colorado and Montanaexploration could drop as

much as

40%

THE NEXTWAVE OFWELDING

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partofamodularweldingsystemforsin-

gleormultiplearcapplicationstargeted

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tives: increasedproductivity, lower

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Themachine is rated at 1000

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arcmaybedrivenby a singlema-

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The Power Wave AC/DC 1000 produces a

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forunprecedentedweldingperformanceinmulti-

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The Power Wave AC/DC 1000 takes ad-

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The AC waveform can oper-

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The first and only inverter designed for AC/DC submerged arc welding.

The AC waveform canoperate at any

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18 www.ngoilgas.com

the 10th time that annual oil production has

grown since the production peak that oc-

curred in 1970, almost 40 years ago. Also,

2007 saw imports decline from the all-time

peak of 3.396 billion barrels that occurred in

2005. O&G identifies the current top 10 oil

fields in the US.

TOP 10Largest oil fields in the USAs demand for oil goes up,so mustproduction.

1

43

65

87

109

2Prudhoe Bay, Alaska13 billion barrels (BB)

East Texas, Texas5.1-6.0 BB

Wilmington, California2.8-3.0 BB

Midway-Sunset, California2.8-3.5 BB

Kuparuk River, Alaska2.6 BB

Kern River, California2.0-2.5 BB

Thunder Horse, Gulf of Mexico1.5-2.0 BB

Yates, Texas2.0 BB

Belridge South, California1.9 BB

Wasson, Texas1.8 BB

18

In 2007, US crude oil production actual-

ly increased for the first time year-on-

year since 1991. According to the US

Energy Agency, US production totalled

1.872 billion barrels, which was increase of

just 182,000 barrels over 2006. Despite the

fact that this increase is very small, it is only

ACCREDITATION LAB

Independence

Confidentiality

Traceability of results

Intheearlyseventies,noexisting facility ful-

filled SPSE flowmeters calibration needs,

so it was decided to invest in an adapted

flowmeter calibration laboratory. This

choiceofa centralizedcalibrationguaranteeda

better metrology performance.

This facility,being theonlyone in theworld

in such a range of flowrates (up to 4000 m3/h)

and viscosities (0.5 to 500 cSt) soon attracted

flowmeter users and manufacturers.

To obtain the recognition of its skills and

competences by the international authorities,

and offer its clients the best services, SPSE de-

cided to turn to accreditation.

AccreditationBeing in relationwith themanufacturers re-

quires the strict adherence to confidentiality of

thepersonnelperformancetests,acceptance in-

spections, technical expertise and endurance

tests in perfectly objective conditions.

The laboratory connects the flowmeters to

national standards and carries out primary and

periodic calibrations. It also carries out tests or

expert studies for all types flowmeters with

meter manufacturers.

SPSE Laboratory guarantees:

International recognition

SPSE proving station carries out calibrations up to 4000m3/h within a rangeof viscosities from 0.5 to 150cSt on standard (accredited up to 500cSt)


with$57millionofBoone’sownmoney, towean the

US off oil imports through a massive investment in

windenergyandconversiontonaturalgasforvehicles.

Earlier thisyear,healsofoundedMesaPowertoover-

see what would be the world’s largest wind farm in

Texas,able tomake4000megawattsofelectricity, or

enoughtopower1.3millionhomes.

Mesa Power has already placed orders for the

firstphaseof thePampaWindProject,667windtur-

bines from General Electric capable of generating

1000 megawatts of electricity – enough to power

more than300,000averageUShouseholds.

“The capital markets are problematic

foreveryoneandmayleadustoscaleback

abit,”JayRosser,aspokesmanforMesa,

toldCNNinastatement.“Butwearestill

goingforwardwithourwindbusiness.”

Thefirstphaseof theproject,pro-

jectedtocost$2billion,wassupposed

tocomeonline inearly2011.

Source: news.cnet.com

Billionaire oilman T. Boone Pickens, who

launchedahigh-profilecampaigntoreduce

oil imports to the US, is being forced to

delay a huge planned wind-farm project,

accordingtopublishedreports.

Boonehasrecentlyspokenoutandsaidthat the

wind project is having trouble getting financing be-

causeofthecreditcrunch.Hewasalsoquotedsaying

that falling prices of natural gas, used in power

plants,aremakinghiswindproject lesseconomical.

In July,Boone launched

apublic campaign,

saidtobefunded

667 wind turbines arecapable of generating

of electricity

1000MW

Pickens launched apublic campaign, said to

be funded with

of his own money$57 million

The first phase of theproject has been projected

to cost

$2 million

PICKENS MAY STALL WIND FARM PLANS


20 www.ngoilgas.com

Expanding economic activities in the world,

and especially in China and India, are the

main drivers for continuous rising demand

for energy. We adopt the view that there is

sufficient petroleum resources, convention-

al and non-conventional liquid fuels, to meet

growing demand for decades to come.

Key players in the market need to make

timely investments to expand oil and gas

supplies. We in Kuwait will pursue with our

long-term plans to sustain enough supplies

to the market according to strategies set for

KPC until 2020.

The desired benefits from foreign participa-

tion includes extracting maximum value

from the reservoir assets, adding reserves,

optimization of capital expenditure, cost

savings, application of new technology, ac-

quisition of improved management systems

and creation of job opportunities for

Kuwaitis.

Production is moving to increasingly diffi-

cult locations as easy oil is diminishing and

the high oil price makes previous explo-

ration and complex asset maximization

economically viable. A very important chal-

lenge in this area is to improve technologies

to respond to these complexities and at the

same time improving technology application

capabilities.

Having a skilled and motivated workforce is becoming increas-

ingly scarce, so the HR, learning and development departments

are therefore becoming increasingly important. The need for such

talent is increasing as projects become more complex and man-

agement becomes more difficult.

Capital project management is becoming a big obstacle for the

oil industry and KPC in particular, as projects become more com-

plex, and at the same time exceeding their costs and not meeting

THE FIVE-MINUTE EXECUTIVE

20 A global perspectiveSaad Al-Shuwaib, CEO of Kuwait Petroleum Corporation, reveals thechallenges he faces in the Middle East market.

their deadline. This is a competency that needs to be nurtured and

developed to ensure the strategic objectives are met on the medi-

um and short-terms.

“This is a competency that needs tobe nurtured and developed to ensurethe strategic objectives are met on the

medium and short-terms”


TheUSDepartment of Energy (DOE) has an-

nouncedupto$17.6million,subjecttoannu-

al appropriations, for six early stage

photovoltaic (PV)module incubatorprojects

that focus on the initial manufacturing of advanced

solarPVtechnologies.Includingthecostsharefromin-

dustry,whichwill be at least 20percent, the total re-

search investment is expected to reach up to $35.4

million. These projects support outgoing President

Bush’s Solar America Initiative, which aims tomake

solarenergycost-competitivewithconventionalforms

ofelectricityby2015.Increasingtheuseofal-

ternative and

cleanenergytechnologiessuchassolarenergyiscrit-

ical todiversifying thenation’senergysources to re-

ducegreenhousegasemissionsanddependenceon

foreign oil. As the lead agency for the Advanced

EnergyInitiative,DOEiscommittedtothediversifica-

tionofUSenergy resourcesbyspurringwidespread

commercializationanddeploymentofcleansolaren-

ergy technologies. The development of innovative

technologieswillhelptoprovidelong-termeconom-

ic,environmentalandsecuritybenefitstotheUS.

“Theseprojectswillhelppromotethedevelop-

ment of a diverse set of photovoltaic technologies

andensurethattheUSisaworldleader innext-gen-

eration, cost-effective solar technolo-

gies,” Acting Assistant

Secretary for Energy

Efficiency and Renewable

Energy John Mizroch said.

“Thesesolarphotovoltaicin-

cubatorawardswill helpac-

celerate the time it takes for

innovative start-up companies to

gettheir technologiestomarket.”

Including the costshare from industry,which will be at least

20%

The DOE has announcedup to

for six early stagephotovoltaic moduleincubator project

$17.6 million

the total researchinvestment is expected to

reach up to

$35.4 million

ON THE BRIGHT SIDE


22 www.ngoilgas.com

Technology has transformed our industry

and empowered it to be more effective and effi-

cient. There has been the information technolo-

gy revolution, moves to explore and develop

deeper offshore, better sub-surface imagingand

directional drilling. This has helped expand pro-

duction, improved recovery ratesandat thesame

time facilitated a continuing increase in the esti-

mates of global ultimately recoverable reserves.

Estimates of ultimately recoverable reserves

THE BURNING ISSUEInvesting in the futureThis fall’s economic meltdown has had a massive cross-industry impact as compa-nies look to batten down the hatches and weather the storm – but taking a longer-term view will be critical to future success.22

Our lifestyles, our economic strength and

our national security all depend on ready avail-

ability of adequate supplies of energy. If we

don’t take steps to control our energy destiny,

we put at risk a better future for ourselves and

for the generations that follow. Large domestic

supplies of oil and natural gas are critical to our

energy future. Alternatives are important but

cannot yet substitute for the vast amounts of oil

and natural gas we now use and are projected

Conventional energy sources will remain

indispensable to meeting demand for

decades to come, even as we pursue greater

contributions from renewable energy. But we

can’t simply drill our way out of the problem.

There aren’t enough domestic reserves, and

what there are will take time to develop. The

reality is that there are no silver bullets, no

quick and easy answers. Massive scale, long

lead times, tight spare capacity, growing de-

to continue to demand. A sound national ener-

gy policy will encourage energy diversity and

conservation. It will push the development of al-

ternatives, encourage greater energy efficiency,

but ensure we have the traditional fuels we will

continue to require. The oil and natural gas in-

dustry has the technology and know-how to

safely bring the resources out of the earth and

to consumers. But we can’t do that without

Congress’s help.

have practically doubled since the early 1980s

and continue to rise. It is interesting to note that

cumulative production during this period has

been less than one-third of the increase. On top

of this, there is also a vast resource base of non-

conventional oil to exploreanddevelop.The issue

is not whether the resources are there.We know

they are. The world has enough oil resources to

meetdemandandsatisfy consumers for decades

to come. The question is one of deliverability.

mand – these are the realities we face. There

are solutions. And those solutions are not ‘ei-

ther/or’. It’s not a choice betweenmore drilling

or more efficiency. It’s not a choice between

coal or wind. It’s not a choice between nuclear

or solar. We need it all. We need greater effi-

ciency and more renewables. We need nuclear

and clean coal. We need wind and oil and nat-

ural gas. Our path to energy security cannot

rely on just one option.

Abdalla Salem El-BadriSecretary General, OPEC

Red CavaneyFormer President, American Petroleum Institute

David O’ReillyCEO, Chevron Corporation


23www.executivehm.com

of the Iraqi govern-ment’s budget comes

from oil (p136)

90%Barack Obama plans

to reduce carbonemissions by

by 2050 (p28)80%

ConocoPhillips’ capital expenditure in2008was

(p36)

Devon Energy produced

barrels in 2007 (p52)224 million

$15millionThe Denali pipelinewill be 2000 miles long

(p78)

ISSUEIN NUM8ERS

This month saw several conservation groups filing formal

protests against what they call a “fire sale” of oil-and-gas

drilling leases in Utah. The Sierra Club, The Wilderness

Society and the Southern UtahWilderness Alliance filed their

objections to drilling in 100,000 acres (40,469 hectares) of wild land

in eastern Utah.

TheUSBureauof LandManagement (BLM)hasalreadypullednear-

ly 100,000acres from theupcomingauction, leavingmore than276,000

acresup for bid.TheBLMhasalreadybeenunder intensepressure from

the National Park Service to cull a list of auction parcels in Utah’s final

oil-and-gas lease sale of President GeorgeW. Bush’s administration.

Lastweek, theBLMpulled drilling leases thatwere located on and

around the borders of Arches National Park, Dinosaur National

Monument and Canyonlands National Park, all in Utah.

Stephen Bloch, an attorney for the Southern Utah Wilderness

Alliance described the auction as “the Christmas sale, the Bush ad-

ministration's last great gift to the oil and gas industry.”

Source: International Herald Tribune

Job losses throughout theUShaveseen the cost of crudeoil fall

to its lowest price in nearly four years, new reports show. On

December 5, oil fell as low as $43.25 a barrel, the lowest since

January62005.“All theweakeconomicdata is reallydisturbing

the oil market,” said Sintje Diek, an analyst with HSH Nordbank in

Hamburg.

Oilpriceshavenowseena fall of70percentsince reachinga record

$147.27abarrel back in July. In fact, during the four-weekperiodending

November28,USfueldemandwasdown6.2percent fromayearbefore.

What’smore, theNationalBureauof EconomicResearch, aprivate,

non-profitpanelofeconomists thatdatesAmericanbusinesscycles,has

said that the US actually entered a recession as far back as December

2007 and US equity markets declined earlier this month as oil stocks

droppedon forecasts of $25-a-barrel crude.

“The picture is still very bearish,” said

Gerrit Zambo, an oil trader at

BayernLB inMunich.”

Source: Bloomberg.com

FUELING THE DEMAND

UP FOR LEASE


24 www.ngoilgas.com

Back in issue two of Next Generation Oil & Gasmagazine,we spoke to Shell’sMarvin Odumabout his major North American projects andthe continuing pressure on world supplies.Hereveals his thoughts on access to resources,human resources, escalating project costsand regulatory predictability.

To read more, go to the Past Issue section atwww.ngoilgas.com and click on “Benchmarkingthe industry”within issue two.

WATERSUSTAINABILITY

ConocoPhillips is devel-

oping improved meth-

ods of water purification

and recycling. In mid-

2007, the company announced

plans to establish a global Water

Sustainability Center that will ex-

amine ways of treating and using

by-product water from oil produc-

tion and refining operations, as

well as other projects relating to in-

dustrial and municipal water sus-

tainability. The center will be

located in Qatar Science and

Technology Park at Education City,

Doha, Qatar. ConocoPhillips plans

to invest $25 million in the center

over its first five to seven years. The

center will conduct research on and

develop and test technologies re-

lating to water production and

management, disseminating find-

ings to the company’s global oper-

ations as well as to local

government and industry partners.

India,TurkeyandIsraelareexploringaplanto

use a new route to pipe and ship oil and gas

to India. The proposed pipeline will give en-

ergy-hungryIndiaeasieraccesstothevastoil

and gas supplies of Central Asia. Petroleum offi-

cials from India, Turkey and Israel will meet next

monthtodiscussaprojecttotransportoilandgas

to India using a combination of pipelines and su-

pertankers running between the three countries.

The oil and gas will be carried via a pipeline

from the Caspian region to the Turkish port of

Ceyhan. The supplies will then be taken via su-

pertankers to Israel, fed intopipelinesrunningto

Israel’s Eilat port, and finally make their way to

India via the Red Sea.

An analyst at the Indian Defense

NEW JOINT PROJECT EXPLORESPLAN TO PIPE OIL,GAS TO INDIA

and Strategic Institute in New Delhi, Shebonti

Ray Dadwal, says the proposed route carries

many economic and political benefits for India.

“It is going to be cheaper if the oil comes via the

Red Sea, as the pipeline will allow it to,” he ex-

plained. “I believe it is going to be four dollars a

barrel cheaper to transport it through the

pipeline. Also politically it will allow us to avoid

the Suez Canal and Strait of Hormuz. In the

event of a war that is going to be blocked. This

is an alternative route.”

India is heavily dependant on oil imports,

and worries that any instability in the Middle East

region could disrupt supplies of oil to the coun-

try. Those concerns have prompted India to look

for both alternative sources and alternative

routes to ensure the smooth flow of its massive

energy requirements.

FROM THE VAULT


25www.ngoilgas.com

DRESSER-RAND COMPLETES TWOKEY ACQUISITIONS

SMARTWATERBOOSTSPRODUCTION

Researchers in Norway

have reported that inject-

ing a special type of sea-

water called ‘smart

water’ into certain low-yield oil

wells may help boost oil extraction

by asmuch as 60 percent.

In the new study, Tor Austad et

al note that more than 50 percent of the

world’soil reservesare trapped inoil

reservoirs. By injecting seawater

into these chalk-based oil wells, oil

extraction is boosted dramatically.

However, scientists still have yet to

discover whether the method

works for oil wells composed of

limestone, a material known for its

low oil-recovery rates.

Dresser-Rand, a global supplier of ro-

tating equipment to the oil, gas,

petrochemical and process indus-

tries, recently completed twoacqui-

sitions. Both are consistent with the

company’s commitment to a ‘bolt-on’ acquisi-

tion strategy to expand services to its clients

and acquire products, services and technolo-

gies that enhancemarket positions.

Peter Brotherhood Ltd: Dresser-Rand’s UK

subsidiary, Dresser-Rand Ltd, has completed

the acquisition of certain assets of Peter

Brotherhood Ltd, a company that specializes

in the design and manufacture of steam

turbines, reciprocating gas compressors, gas

packaged combined heat and power systems

(CHP) and gearboxes. The Peter Brotherhood

business had sales of approximately $94

million in fiscal year 2007.

Stephen Fitzpatrick,ManagingDirector of

Peter Brotherhood, commented: “Dresser-

Rand recognized the success we have forged

by a clear set of values focusing on customer

care and satisfaction and the delivery of great

products by a highly motivated and successful

workforce.”

Enginuity LLC: Dresser-Rand also acquired

the assets of Enginuity LLC a private, US-

based provider of combustion and catalytic

emissions technology solutions, controls and

automation, and aftermarket services for

reciprocating gas engines used in the gas

transmission market. In 2007, Enginuity

reported sales of approximately $16million. In

connection with this acquisition, Dresser-

Rand will establish its Gas Engine Technology

Center in Fort Collins, Colorado, headquarters

to Enginuity since 1999.

Chad Fletcher, founder and CEO of

Enginuity, observed: “The well-established

Dresser-Rand brand provides the platform

whereby Enginuity can realize its vision of

‘bringing energy and the environment

into harmony.’”

Dresser-Rand is among the largest suppliers of rotating equipment solutions. The company operates manu-

facturing facilities in the US, France, UK, Germany, Norway, India and China, andmaintains a network of 30 ser-

vice and support centers covering more than 140 countries.

Low-yeild oilwells may help

boost oilextractions by as

much as

60%

IMPROVEMENTS INWATER TREATMENT

separation (vertical and horizontal, singleandmultiple flotation cells)

Secondary

separation (CPI and hydrocyclones)

harmful discharge technologiesZero

separation (media and nutshell filters)Tertiary

Primary

Producedwaterisawidespreadconcern

in oil and gas production. Depending

on various factors, including environ-

mental restrictions, reservoir disposal

limitationsandend-useoptions, treatmenttore-

moveoil, solid and chemical contaminants is al-

most always necessary. With ever increasing

water volumes, the management of produced

waters isanecessaryevil ofproduction.

Typically,producershavehadlimitedreliable

process and equipment solutions suppliers.

Producersare frustratedbyhigh levelsofactivity

that have resulted in higher prices, longer deliv-

eriesandpoorclientattention.

Toaddressclientneedsinthemidstofgrow-

ing challenges, process solutions provider

ProSepTechnologies, Inc. has launched a com-

pleteportfolioofproducedwaterequipment.

Thisnewlineofproducts isbasedonproven

process principles and industry accepted con-

cepts anddesigns. The offering features a solu-

tion-orientedapproach; client-focusedattention

and responsiveness; flexible commercial terms;

experiencedprojectmanagement,fabricationand

assembly expertise; and a dedicated service

team.ProSep’sfabricationandassemblyfacilities

will facilitatequality assuranceandcontrolwhile

providingin-housecontroloftheprojectschedule

toensureon-timedelivery.

The comprehensive range of produced

water treatment solutions covers inlet contami-

nation concentrations of several percent to tens

of ppmand capacities from2000-100,000BPD,

and is designed to address the full spectrumof

water treatment issues.

ProSep’s portfolio offering includes:


COMPANY INDEXQ4 2008

26 Companies in this issue are indexed to the first page of thearticle in which each is mentioned

AC EngineeringAmaltoAOA GeophysicsArcher Daniels Midland CompanyARKeXBaker HughesBaylor College of MedicineBPBurlington ResourcesCarbon Disclosure ProjectCentekCERACGG VeritasChevronCiscoComputITConocoPhillipsCrowcon DetectionSystemsDedico ASDenali – The Alaska Pipeline LLCDepartment of EnergyDevon Energy

98,9919

62,63110

8,58,593882

52,78,82,104,1322828

64,6582

13,129,14352,132

44107

28,66,78,110

105697846

25,52

Dresser RandEMCEnCana CorpEncomWirelessEnergy HoldingErnst & YoungExxonMobilFircroft GroupGazpromGEGeosoftGilat NetworkGlobal Energy InsightsHalliburtonHerriott Watt UniversityHoneywellIBMImperial College LondonIndependent PetroleumAssociation of America (IPAA)International Energy AgencyInternational Marine ContractorsAssociation

1412

110122,123

89144

104,13294,95

82425111796908211911482

6082

100

IOWA State UniversityIraq National Oil CompanyIraqi Federation of Oil UnionsJOA Oil & GasKambi EnterprisesKeystone PipelineKinetex IncKongsberg MaritimeLincoln ElectricLUKOILLukoilMaysan Oil CompanyMicrosoftMinerals Management Service (MMS)NACE InternationalOAO LUKOILOECDOil CareersOleksa AssociatesOleumTech CorporationOPECOppenheimerPetrobras

1101321325510666

76,7717,721322813211460741108297

17,26IFC,34,130

10410482

Pipeline ResearchCouncil InternationalPolyguard ProductsProforma SafetyProsepPure TechnologiesReflexMarineReservoir ExplorationRice UniversitySAPSaudi AramcoShellSMU Cox School of BusinessSouthern Oil CompanySPSEStorkSWE-DISH Satellite Systems ABTGS NOPECTotalTransCanada CorpTyson Foods IncUniversity of ManchesterUS Climate Action Partnership

7080,81103

15,1885

108,109578211482

124,13292,138,139

13218,21

4120,121

49114,132

661108228


27www.ngoilgas.com

CARBON CAPTURE SHOWS POTENTIAL

LawyersbelievethatCanadaisleadingthe

race to develop carbon capture and stor-

agetechnology,whichit ishopedwillone

day strip carbon dioxide from coal before

injecting it in deep underground caverns

forstorage inperpetuity.Thenewtech-

nology has the potential to

lower emissions and

driveupoilproduction.

“If you had to

point to a silver

bullet, carbon

capture and

storage is it,”said JohnGoetz,apartnerat lawfirm

Burnet,Duckworth&Palmer, totheFinancialPost.

Western Canada is the perfect testing lab for

the technology as it has an abundance of fossil

fuels and deep geological formations. It has

been reported that Canada’s Western

provinces are hoping the technology will help

meet targets established by the Kyoto

Protocol, which requires an average

reduction incarbonemissionsofsix

percentbelow1990levelsbetween

2008-2012.

Source: Financial Post

AROUND THEWORLD IN 80 DAYSOur guide to the last quarter’s global events – and their impact on your business.

CLIMATE CHANGEAUSTRALIA has insisted that cli-mate change is a priority, de-spite the financial crisis, andpredicts a boom in the renew-able energy sector. Whateverhappens, expect climate changeto continue to be a key driver inthe years ahead.O&G impact rating: ***

TREATY RATIFIEDRUSSIA’s lower house of parliamenthas formally approved treaties withthe Georgian breakaway regions ofSouth Ossetia andAbkhazia.Thewarin Georgia badly strained Moscow’srelation with the West, which waitson what will happen next. Our pre-diction? Further friction in 2009.O&G impact rating: ***

OIL REFORMSMEXICO has passed new rulesthat give the state oil monopolymore leeway in parceling outand financing projects. Themove represents big progressfor US oil services companies,putting them on a more solidlegal footing. Good news.O&G impact rating: ****

TAX RELIEFNORTH SEA oil and gas compa-nies have welcomed a tax breakfor 2009 as a chance to stimu-late investment, hit by falling oilprices, high costs and a short-age of finance. Whether it willhave any real effect remains tobe seen.O&G impact rating: ***

SOMALI PIRATESSOMALI pirates who captureda 1000-foot oil supertanker inNovember could change the wayoil and gas is transported aroundthe Cape of Good Hope accordingto recent reports. However, it is alittle early to predict how just yet.Watch this space.O&G impact rating: ***

IRAQ MONOPOLYIRAQ’s parliamentary oil andgas committee have accusedthe Oil Ministry of handing amonopoly on Iraq’s southerngas fields to Royal Dutch Shell.Theministry are standing firm,while the committee vows tofight. Tricky times in 2009.O&G impact rating: ****

TRANSPORTABLE GASChemists at the University of Liverpoolhave been developed a new way toconvert methane gas into a powerform to make it more transportable.The scientists have developed amaterial to soak up large quantities ofmethane molecules. It looks and actslike a fine white powder, which couldbe easily transported.

GROWTH POSSIBLEDespite falling energy consumption,Booz and Co’s energy consultantsadvise oil companies to remember thatstrategic growth is still possible. Theenergy consultants suggest that it couldbe a good time to contemplate strategicgrowth and invest in core businesses.

NO TAX BRINGS RELIEFBarack Obama is no longer planning toimplement a windfall profit tax on oilcompanies because prices havedropped below $80 a barrel. The switchhas drawn applause from the industrywho opposed the tax saying it wouldstifle exploration and innovation, aswell as cost the country billions assuppliers would look overseas ratherthan at domestically-produced oil.

TIME/COST SAVINGSDevelopers claim a prototype drillingtool could give exploration a ‘gamechanging’ technology. The Norwegianinventors of the Badger Explorer claimthat it removes the need for fixed rigdrilling, bringing with it the promise ofhuge time and money savings and thatit has a low impact on theenvironment. Originally conceived in1999, the Badger Explorer was formedin 2003 to take the innovativetechnology to full commercialization,with partners including Shell,ExxonMobil and StatoilHydro.


28 www.ngoilgas.com

MARKET ANALYSIS

OBAMA ED FINAL:29 MARCH 9/12/08 16:27 Page 28

29www.ngoilgas.com

FOR OILA NEW DAWN

It’s March 2008, and the Democratic Party’s brightest hope for theWhite House is

standing in a gas station speaking directly to camera. Intercut with archive footage

of cars lining up for gas at an Exxon station back in the 1970s, he explains how en-

ergy independence is a policy issue that has been consistently fudged through four

decades ofmismanagement on thepart of both political parties. Nothing’s changed,

he points out, other than that oil companies have gotten richer and customers are

payingmore at the pump. Calm and self-assured, his message is clear and concise.

“I’m Barack Obama,” he intones. “I don’t take money from oil companies or

Washington lobbyists. And I won’t let them block change anymore.”

For many in the oil sector, that 30-second TV spot – launched during this year’s primary

campaign – told them all they needed to know about what an Obama administration might

look like for their industry. Riding intoWashington in the wake of $4-a-gallon gas prices, the

Obama campaign focusedon the area ofmost concern for potential voters: their pocketbooks.

America was in thrall to oil, he implied, an industry guilty of

decades of self-interest rather than one focused on finding

common solutions to the nation’s energy problems. Obama’s

visionwasoneof a greener andmore efficient America. It would

create jobs, and cutUS reliance on rogue, oil-producing states in

The Obama administrationpromises to mark a new chapterin America’s leadership on climate

change, strengthen energysecurity and create millions ofnew jobs in the process. But

given his vow to free the worldfrom what he calls “the tyranny ofoil”, exactly what does the newpresident have in the pipeline?

By Ben Thompson


able sources by 2025. Biofuels are in, crude is out. Obama has also vowed

to increase government support for both public andprivate sector research

and development to meet US (and global) energy demand through new

technologies. By channeling funds and committing government depart-

ments (including the military) to greening and incorporating the use of

these new technologies, the new administration hopes to create a sort of

‘moon-shot’economy in theUS,with a commonality of purpose in tackling

oil dependence.

But while there is no doubt that a concentrated effort to drive the US

economy in this directionwill eventually start to bear fruit (even if it is sub-

sidized in the near term), the realities of the current economic situation

mean that potential is not enough.

The recessionhas propelled a stimulus package to the topof his agen-

da, after the government announced that the US economy lost 533,000

jobs in November and the unemployment rate had climbed to 6.7 percent,

its highest level for 15 years; as Obama knows, energy and the economy

are inextricably intertwined. America needs energy now if it is to stimulate

a recovery.

“Energy is everything and without energy – particularly low-cost ener-

gy, whichwe’ve becomeaccustomed to in this country – all the great things

we’re able toaccomplish that havemadeus theenvyof theworldwouldnot

be possible,” points out Jack Gerard, CEO of the American Petroleum

Institute. “Oil andgas is thebackboneof theAmericaneconomy. It hasbeen

formanyyears; itwill continue tobe formanymore years.Wecouldquadru-

plewhatwe’re talkingabout in theareaof alternatives and renewables, and

what would that give us? About three percent of our energy production.”

As such, oil and natural gas must remain an important part of the en-

ergy mix, he insists, and indeed the president-elect is already facing pres-

sure from both sides to clarify his plans for offshore drilling. Oil and gas

companies appeared to score an all-out victory over the summer when

President Bush lifted an executive ban on offshore drilling and congres-

theMiddle East and elsewhere. And the implicationwas that hewould get

there with or without the co-operation of the international oil majors.

Asa statementof intent, it certainly set industrypulses racing.Obama’s

administration iswidely expected topursuepolicies that couldhurt oil com-

panies’ profits, with most headline objectives aimed at weaning the US off

its dependence on the black stuff. He promisedwindfall taxes on oil profits

over $80per barrel;wasguarded inhis support of further domestic drilling;

and, both during the campaign and since his

election victory, made it clear that his presi-

dency finally intends to change the way

America powers and propels itself. “We go

from shock to trance,” he explained in an in-

terview with 60 Minutes on November 16.

“Oil prices go up. Gas prices at the pump go

up. Everybody goes into a flurry of activity.

Then the prices go back down and suddenly

weact like it’s not important andwestart fill-

ingupourSUVsagain.Asa consequence,we

never make any progress. It’s part of the ad-

diction thathas tobebroken.Now is the time

to break it.”

The challenge facing ObamaIt won’t be an easy task. In order to sup-

port its vision, the newadministration favors

a carbon cap-and-trade scheme, supports

greenhouse gas reduction in linewith Kyoto

Protocol targets and has called for 25 per-

cent of US electricity to come from renew-

ENERGY AND THE CREDIT SQUEEZE

The credit squeeze hasalready put some smallerplayers in the oil and naturalgas industry out of business.

Many are still operating but areexperiencing a cash crunch – eitherbecause others don’t want to dobusiness with them, or because thecredit that is available is veryexpensive.

Some are offering discountedrates for their services in the hopethat they will be able to maintaincash flow. Petrobas recently ran intoproblems when it awarded contracts

for building 20 deepwater drilling rigsto Brazilian firms with littleexperience in such projects. Many ofthese firms were not able to borrowthe money they needed to finish thepromised rigs; now Petrobas has thechoice of advancing thesecontractors the additional funds theyneed, or finding other contractors ata much higher price.

Others are trying to use the lowerprices available from contractors totheir advantage. Saudi Aramco isrenegotiating contracts on its $15billion Manifa project, originally

Obama’s energy goals will be closely alignedwith re-invigorating the economy. Here’s why.

� Help create five million new jobs by investing $150 billion

over the next 10 years to boost private efforts to increase

clean-energy production

� Within 10 years, save more oil than the United States currently

imports from the Middle East and Venezuela combined

� Put one million plug-in hybrid cars that can get up to

150mpg on the road by 2015

� Ensure 10 percent of the country's electricity comes from

renewable sources by 2012, and 25 percent by 2025

� Implement an economy-wide cap-and-trade program to

reduce greenhouse gas emissions by 80 percent by 2050

OBAMA’S ENERGY PROPOSALS

30 www.ngoilgas.com


sional Democrats let a moratorium expire soon after. It’s good news for a

domestic industry that has long called for increased access to America’s

huge untapped reserves, but even so it’s only a first step. Obama has not

yet stated whether he will challenge the Bush administration’s move, and

even if the moratorium is not re-instated those who think nothing stands

between oilrigs and the outer continental shelf are misguided.

“A lot of people think that once the moratoria are lifted, oil companies

can go out and do whatever they want,” says Lisa Flavin, Senior Policy

Adviser at the American Petroleum Institute. “That’s just not the case. There

are tons of permits and regulations. It’s a very lengthy process.”

An important part of the mixEven so, many in the industry are heartened by the recent noises com-

ing from the Obama camp. The decision not to pursue the profits windfall

tax in the wake of a steep fall in oil prices has been welcomed, and given

some insiders hope that the new president might be open to further nego-

tiation on other key energy discussion points – most notably, the important

role oil and natural gas can play in helping the US meet its energy needs.

“The goal of true energy independence is far too complex to believe that

renewable sources alone will be enough,” says Oklahoma Governor Brad

Henry, incomingChairmanof the InterstateOil and Gas Compact Commission.

“Regulations aimed at environmental protection are important and appro-

priate, but they cannot come at the expense of handcuffing an industry that

must enhance domestic oil and gas production.The US will need every arrow

in its quiver to face the challenges of energy production in this century.”

Carl Michael Smith, Executive Director of the IOGCC, agrees. “Too

often we have resorted to an either-or mentality in the US on energy poli-

cy,” he says. “We have viewed energy policy as a zero sum game – in other

words, we can encourage either development of renewable sources of en-

ergy, or development of oil and natural gas, but not both. My message is

that we can and must do both.”

31www.ngoilgas.com

scheduled to add 900,000 barrels perday in oil production in mid-2011.The intention is to reduce costs, butwill likely increase the risk ofsubcontractor bankruptcy and delaythe start of new production.

Many oil and gas companies arefinding it necessary to limit theirinvestments to what they can financewith cash flow. In the Canadian oilsands, both Suncor and Petro-Canada have pushed backpurchasing plans, at least partlybecause of cash flow considerations.US natural gas producer ChesapeakeEnergy recently cut its spending plansthree times within a single month.

Other companies have founddifferent ways to work around the

capital freeze. Russian oil companyRosneft reached an agreement withChinese energy company CNPCSinopec to lend it funds for a pipelinein return for a guarantee of oil.

Meanwhile Lukoil, another Russian oilcompany, has asked the RussianDevelopment Bank for a $1.8 billionloan to refinance its foreign debt.

Without outside sources of credit,companies are under pressure tokeep capital expenditures within thefunds that are generated by cashflow. And since the credit squeezekeeps prices low, there is no point inextracting oil and gas if the marketprice is too low to provide areasonable return on investment. Thenet impact is that oil production hasalready started to decline. Plans forfuture investment have been cutback, so it is likely that oil productionwill stay low for quite some time.Even if prices should rebound, lack ofcredit will limit the ability of the oilsupply chain to increase production.For these reasons, world oilproduction is likely past its peak.

“The net impact isthat oil productionhas already started

to decline”


More drillingwould certainly help in this regard, andObama’s agenda

calls for “responsible domestic oil production” as part of a comprehensive

energy plan – good news for domestic producers. “The role of oil and nat-

ural gas in America’s energy supply, now and in the future, is critical,” sug-

gests Barry Russell, President and CEO of the Independent Petroleum

Association of America. Russell’s organization represents independent pe-

troleum and natural gas producers nationwide, most of which are small

businesseswith fewer than 20 employees. He refutes the idea that the US

oil industry is all about record profits and huge companies manipulating

policies to their own advantage, arguing that the industry is actually home

to a vibrant SMB community that provides a crucial economic engine.

“Our members drill 90 percent of American oil and natural gas wells,

producing approximately 82 percent of American natural gas and 68 per-

cent of American oil,” he points out. “In addition, small businessmembers

of IPAAoperate the overwhelmingmajority of USmarginalwells that are re-

sponsible for 20 percent of America’s oil production and 12 percent of the

country’s natural gas production. Currently, oil and natural gas account for

about 65percent of America’s energy supply, andover the next 25 years the

Energy Information Administration projects that energy demand will in-

crease 30 percent. A strong and vibrant independent exploration and pro-

duction industry is critical if theUnitedStates is tomeet its energy needs.”

Is gas the big winner?Indeed, while oil producers wait with fingers crossed to see how their

industry will be impacted by Obama’s vision of a greener, less-carbon-

intensive future, companies involved in natural gas could be about to wit-

ness a period of sustained growth as America looks for alternatives to

petroleum. Natural gas now accounts for about 20 percent of the energy

used to create electricity in the US, and groups like the Independent

PetroleumAssociationof America predict that it will becomeevenmore im-

portant in the upcoming climate-change debate; in fact, over the past

decade more than 90 percent of the new electric capacity built in the US

has been natural-gas-fired generation. About 84 percent of America’s total

natural gas consumption is produced domestically, while the rest comes

primarily from Canada. Only two percent of natural gas used domestically

comes from other countries.

“If the Obama administration and Congress follow through on their

campaign promises to rely on more renewables to make electricity, natur-

al gaswill prove extremely useful in enhancing the reliability of those fuels,”

says R. Skip Horvath, President and CEO of the Natural Gas Supply

Association. “We are blessed as a country to have so much domestic nat-

ural gas in the ground.”

At least 250 trillion cubic feet of recoverable natural gas is estimated to

lie under the outer continental shelf alone, meaning that the gas industry,

too, could benefit from the recent lapse in the drilling moratorium. “With

calls to power cars and truckswith natural gas, opening up the far-offshore

areas for natural gas exploration and development makes a lot of sense,”

Horvath continues. “Even in the face of hurricanes, modern recovery tech-

nologieshavedemonstratedour industry’s ability toprotect our shorelines.”

What next for US energy?It all comes back to the thorny issue of increased drilling. Specifically,

Obama’s campaignagenda called for oil companies to explore andproduce

on the68million acres of federal land and the40million offshore acres that

oil companies already have under lease but are not drilling on – a ‘use it or

lose it’ approach. The carrot for oil companies is a streamlining of the fed-

eral permitting process to encourage development in three areas: the

BakkenShale deposits inMontana andNorthDakota; unconventional nat-

32 www.ngoilgas.com

� Independent American oil and gas businesses – not big oil –

develop 90 percent of the nation’s oil and gas wells

� There are 5000 independent oil and natural gas companies in

the US with, on average, 12 employees

� These independent businesses also hold the majority of the

nation’s federal oil and gas leases onshore and offshore

� American oil and gas companies are developing more oil and

gas wells than at any other time since 1985

� Developing leases requires both technical and procedural

steps. Technically, areas must be analyzed and exploratory

wells drilled. Procedurally, the federal permitting process

must be navigated

� Most of the drilling on federal leases has been for natural

gas, and natural gas production was way up last year, along

with demand

USE IT OR LOSE IT


ural gas plays in the Barnett Shale formation in Texas and the Fayetteville

Shale play in Arkansas; and the National Petroleum Reserve in Alaska. His

campaign also called for enhanced recovery methods to access the 85 bil-

lion barrels that are technically recoverable from

existing fields.

But although more exploration and produc-

tion is good news for the industry, recent eco-

nomic factors are causing the sector some

serious headaches. Not only does Big Oil look

likely to lose its tax breaks, Obama is also calling

for oil companies to go after harder-to-get and

more-expensive-to-produceoil and gas deposits

– which may be technically feasible, but would

be much less profitable.The collapseof oil prices

is making E&P a much more difficult investment

proposition for oil and gas companies; add in the

prospect of tighter environmental regulations,

and Obama’s plan is going to be a tough sell to

an industry used to making record profits.

Indeed, while Obama’s energy advisors have charted an ambitious pol-

icy, it remains to be seen how practical such a plan really is.While his man-

date for change is considerable, it is important to remember that presidents

alone do not set US energy policy and that Obama’s victory has not been

comprehensive enough to give him an easy ride through the Senate, the

key hurdle for enacting legislation in the US. It may be prudent for the new

president to reach out not only to members of the

Republican Party in setting energy policy, but also

to include key executives from the international

oil companies, too. Offering them a prominent

role in developing future energy policy – in other

words, allowing them to be part of the solution,

rather than viewing them as part of the problem

– could be one way of ensuring a reasonable mar-

ket-based (and job-creating) energy policy that at

the same time delivers some of the administra-

tion’s key objectives.

Obama’s lead energy advisor recently said

that when the Obama administration leaves of-

fice, it expects the US to be using less oil and cre-

ating less CO2 than it does now.

Obama has the ear of the country, and of the

world, and this is a message that many have been longing to hear out of

Washington for many years now. We wait with interest to see whether

‘change we need’ is actually a change for the better. �

33www.ngoilgas.com

“Although moreexploration and

production is goodnews for the industry,

recent economicfactors are causing

the sector someserious headaches”


OleumTech.indd 2 9/12/08 10:48:13

OleumTech.indd 3 9/12/08 10:48:29

In an industry given to bold pronouncements, Jim Mulva prefers a differ-

ent approach: he lets his business acumen and considerable deal-mak-

ing ability do the talking. In 2006 he orchestrated the $35.6 billion

acquisition of US independent Burlington Resources that, virtually

overnight, made ConocoPhillips one of the nation’s top producers of nat-

ural gas. More recently, the alliance he brokered with Lukoil has seen

ConocoPhillips build up a 20 percent equity stake in the oil major and

secure access to the lucrative Russian market. Now, though, he’s turning

his attention to an altogether trickier union: how to address the challenge of climate

change within the context of energy security.

It’s a contentious issue. Public pressure to act over the threat of global warm-

ing has never been greater, and with a new administration set to redefine

America’s approach to carbon emissions and its use of cleaner energy, many see

the next six months as a critical period. Inaction or procrastination now could ham-

per the environmental movement for years to come. However, with the US in-

creasingly dependent on foreign oil, the need to ensure energy security is an

equally pressing concern. Many in the oil industry believe that without a co-ordi-

nated US policy, the industry is unlikely to be allowed to invest in much-needed

expansion projects because of concerns over emissions. Clearly, Big Oil needs to

be an active participant in the current discussion – and Mulva is determined to

be at the forefront of negotiations.

36 www.ngoilgas.com

In an industry not famed for its eco-credentials,ConocoPhillips CEO Jim Mulva is something ofa paradox: an oil industry executive who’s achampion of carbon controls and the climatechange challenge. But can climate change bereconciled with energy security?

EXECUTIVE PERSPECTIVE

ACHIEVING

CLIMATEENERGY

SECURITYAND

JimMulva ed:dec08 09/12/2008 16:21 Page 36

37www.ngoilgas.com


BakerHughes.indd 387 9/12/08 10:53:07

ConocoPhillips is one of the more

progressive of oil firms when it comes to

tackling environmental issues, but even

so, he concedes that the impact of glob-

al warming has been a relatively recent

concern. When Mulva’s company first

participated in the Carbon Disclosure

Project (CDP) in 2004, for instance, it was

with a certain degree of reservation. An

independent not-for-profit organization

that provides primary climate change

data from the world’s largest corpora-

tions to the global marketplace, CDP

plays a key role in encouraging private

and public sector organizations to mea-

sure, manage and reduce emissions and

climate change impacts. ConocoPhillips’

initial submission to the CDP-2 survey was only four pages long, and was

not approved for public release. “The climate change issue was relatively

new for us, and we did not have as much data on our recently merged com-

pany as we do now,” says Mulva.

Today, however, there is a world of difference. The Intergovernmental

Panel on Climate Change has concluded that global warming is unequivo-

cal. The European Union’s Emissions Trading System is beginning Phase

II. And the new US administration has pledged to address climate change.

This year, when ConocoPhillips filed its questionnaire, it was 19 pages long.

“We had far more data available, much of which had already been released

to the public,” says Mulva. “Attitudes have evolved.”

Energy and climate securityMulva wants ConocoPhillips to serve as a positive example to the rest

of the industry. “Our company has taken a well-defined position,” he ex-

plains. “We are very concerned about the potential impact of climate

change, and last year we became the only US integrated energy company

to call for a mandatory national framework to address greenhouse gas

emissions.”

In keeping with these beliefs, the oil giant is taking steps to better man-

age its own emissions. Earlier this year, the company developed a compre-

hensive climate change plan that included four key action items: to build

organizational capability in the form of processes, people, tools and tech-

nologies; to pursue new opportunities in low or zero-carbon businesses;

to leverage carbon trading and technology; and to better engage external-

ly with a range of bodies from the environmental, scientific and public pol-

icy communities. Mulva believes this approach is already bearing fruit. “We

now regularly measure and forecast our emissions,” he says. “We are im-

proving the energy efficiency of our refining, conducting R&D on carbon

39www.ngoilgas.com

No one entity can address these issues on its own, but

ConocoPhillips has made a decent start in providing

leadership on finding pragmatic and sustainable

solutions to the climate change challenge, seeking to

encourage policy measures that:

� Slow, stop and ultimately reverse the rate of growth

in global GHG emissions

� Establish a value for carbon emissions, which is

transparent and relatively stable and sufficient to

drive the changed behaviors necessary to achieve

targeted emissions reductions

� Provide long-term certainty for investment decisions

� Encourage the development and deployment of

innovative technology to help avoid or mitigate GHG

emissions at all stages of the product lifecycle

� Realistically match the pace and stringency of policy

to the rate at which new technology or infrastructure

changes can be developed and deployed

� Encourage energy efficiency at all stages of the

product lifecycle

� Inform and influence consumer preference toward

less GHG-intensive consumption

� Encourage the deployment of carbon capture and

storage as a practical near-term solution

� Avoid placing a disproportionate burden on any

one business sector or consumer segment

� Support equitable international competition

� Ensure that early actions are not disadvantaged

� Avoid undue harm to the economy

TAKING A LEADERSHIP APPROACH

“Last year we became the only US integratedenergy company to call for a mandatorynational framework to address greenhousegas emissions”


ket of early 2008 clearly demonstrated this need. As a result, the public

agrees that the US needs more domestic production. This is why a majori-

ty now supports environmentally responsible offshore drilling.” He believes

the public would almost certainly reject any effort to address climate

change if, as a consequence, it raised energy prices too far or too fast. Yet

at the same time, the public clearly wants action to address climate change,

so any effort to increase energy supplies would be similarly rejected un-

less carbon emissions were also addressed.

“For instance, any serious effort to reduce emissions would require the

greater use of natural gas to generate electricity,” he suggests. “But to do

this, we would need expanded domestic access for exploration and drilling.

We could not do the first without the second. So climate change and ener-

gy security issues must be resolved together through co-ordinated poli-

cies. The new administration and congress must set aside partisan politics

and get down to business.”

A sound climate change policyWhen he takes office in January, energy and climate change will un-

doubtedly be one of the first things on President Obama’s agenda – and it

is an issue that needs addressing urgently, not least because of its inter-

national dimension. “Of the nearly 40 countries in which ConocoPhillips

operates, some now have greenhouse gas regulations in place; in others,

regulations are imminent. We have important operations in the Arctic, which

capture and storage, and producing renewable fuels. We were already a

leading producer of natural gas, which is clean-burning and low in carbon.”

In a further sign of changing attitudes within the industry, the compa-

ny also now belongs to the US Climate Action Partnership (USCAP), an or-

ganization that includes leading businesses and environmental groups

concerned about climate change. It calls for strong national legislation that

would slow, stop and then reverse the growth of US greenhouse gas emis-

sions. “Current US climate policy is a key business uncertainty,” explains

Mulva. “This uncertainty must be resolved in order for the country and the

world to move forward. For this reason, we urge the incoming presidential

administration to work with congress to pass effective legislation. And fur-

ther, to exercise world leadership in negotiating an international climate

agreement.”

For some, ConocoPhillips’ advocacy is evidence of a shifting attitude

towards green issues on the part of Big Oil; others see it as an obvious

byproduct of a changed operating environment in which business-as-usual

is no longer an option. Either way, the reality is that climate change is only

one of a wide range of energy issues currently faced by the US and other

countries around the world. And it is in balancing an increased focus on mit-

igating the impacts of climate change with competing – and in some in-

stances contradictory – industry imperatives that the real challenge lies.

“We cannot focus on climate change alone,” explains Mulva. “We must

also meet the challenge of improving our energy security. The tight oil mar-

40 www.ngoilgas.com

“We urge the incoming presidentialadministration to work with congress topass effective legislation. And further, toexercise world leadership in negotiating aninternational climate agreement”


is experiencing the impact of warming temperatures. And as we go about pro-

viding the energy that powers modern life, we consume energy ourselves. So

we are not strangers to either the risks or the opportunities associated with

climate change,” says Mulva. “And we obviously have a vested interest in help-

ing achieve global energy security. We believe that our

industry must be involved in the effort to find solutions

to both challenges.”

He proposes a number of steps the energy indus-

try must take in order to address these issues, in-

cluding developing new conventional and

unconventional energy resources, utilizing the in-

dustry’s expertise to develop carbon capture and

storage technology, and leveraging international

business and trading experience in the emerging

global greenhouse emissions industry. He also

maintains that the US has a significant role to play

in the international arena – but that first it needs well-founded policies.

“US climate change policy should be aligned with the ‘four Es’ – environ-

mental integrity, efficiency, effectiveness and equity,” he explains. “It should

meet the long-term objective established in Article 2 of the UN Framework

Convention on Climate Change, which calls for stabilizing greenhouse gas con-

centrations at a level that would accomplish two goals: preventing danger-

ous interference with the climate system; and enabling economic

development to proceed in a sustainable manner. Make no mistake: we are

talking about fundamental changes to the energy system that drives the world

economy and our standard of living, so we must do this right.”

Of course, US climate policy must be efficient in order to minimize

costs to both business and consumers, and as such Mulva supports the

development of a federal program. “We recognize the important role that

state initiatives play, particularly in the areas of building codes, urban plan-

ning and education. But we oppose a patchwork state-by-state approach.

We also believe that an overlay of competing and conflicting regulations,

such as separate standards for renewable and low-carbon fuels, would be

too costly or even unworkable.”

The policy must establish a transparent and relatively stable value for

carbon, which must be sufficient to change behavior enough to achieve the

emissions targets. It must promote new technological solutions without

picking winners. And it should contain look-back provisions so adjustments

can be made in response to changing conditions.

Finally, it must be transparent and equitable. “It should not unduly bur-

den any group of consumers, region of the country or industrial sector,”

says Mulva. “It should also protect industries exposed to competition from

unregulated countries. This is necessary to avoid disadvantaging domes-

tic industry and to prevent emissions ‘leakage’ from industries moving off-

shore. Ultimately, equity requires global participation, and a linked

international system of climate programs.”

A sound energy policyAnd just as a comprehensive climate program should be linked glob-

ally, so it should also be linked to the development of the US domestic en-

ergy policy. Mulva maintains that the US needs a sound, comprehensive

approach that should incorporate four principles: energy supply diversity,

greater energy efficiency, technological innovation and sound environ-

mental stewardship.

Due to rising population and economic prosperity, the world will clear-

ly need more energy in the future, in all forms. This includes alternative and

renewable sources, like solar, wind and geothermal power, biofuels and oth-

ers. But there is, to borrow a phrase, an inconvenient

truth. The world will also need more fossil fuels, as well

as more nuclear power – particularly given that experts

predict that alternatives such as renewables could take

decades to come online to replace these sources. “US

energy policy should of course stimulate development

of alternative and renewable sources, including some

that have not been invented yet,” Mulva concedes. “But

it must recognize the essential role of oil and natural

gas, and open new onshore and offshore areas to de-

velopment. And it should facilitate permitting and con-

struction of energy infrastructure.”

In Mulva’s view, the policy should encourage the environmentally re-

sponsible development of unconventional fossil fuels, such as oil sands,

oil shale and natural gas hydrates. “These are abundant, and are located

within our borders or nearby. They represent hundreds of years of energy

potential.” He cites the example of the Canadian oil sands, which he says

could provide 20 percent of US oil supply by 2020. While some oppose de-

velopment due to their current carbon intensity, Mulva believes that the

41www.ngoilgas.com

$15billion

ConocoPhillips’ capitalexpenditure in 2008


GE.indd 42 9/12/08 10:54:19

best course is to proceed, while continuing intensive R&D to reduce that

carbon footprint.

The policy’s second tenet must be improving energy efficiency. Since

the 1970s, the US has doubled its economic output per unit of energy con-

sumed, but Mulva insists we can do more. “Currently, gasoline demand is

down three percent – the first meaningful decline in years. Total distance dri-

ven fell by 12.5 billion miles in June from a year ago. Sales of hybrid cars are

booming, and business is raising its efficiency. Government can drive contin-

uous improvement through public education, and by enacting rising efficien-

cy standards throughout the economy. This offers the dual benefit of improving

energy security and reducing carbon emissions.”

Third, the energy policy should promote innovation by encouraging re-

search and development. “Enormous corporate investments are already under

way,” he continues. “But we also need public investments in technologies that

cannot be logically funded by industry, such as nuclear fusion or fuel cells.

Government can encourage investment by granting incentives, and by not tax-

ing away the financial returns of energy companies. Government can

also enhance national research capabilities through greater ed-

ucational support.”

Finally, Mulva’s aim is to achieve these priorities

while serving as a good environmental steward – pro-

tecting air and water quality, andpreserving the land

– while at the same time, investing in cleaner forms

of energy. “At ConocoPhillips, we have dramatically

increased our capital spending to more than $15 bil-

lion this year,” he explains. “We primarily concentrate

on our core businesses. But we also have a very active

R&D program in renewable and alternative energy. We

are a large blender of ethanol and we produce renewable

diesel fuel. We are researching next-generation biofuels and

developing new materials for batteries for electric cars. We are

also considering investments in other energy sources. So we are com-

mitted to doing our part.”

Meeting the challenge head-onThe world clearly faces serious challenges on both climate change

and energy security. As economies around the world continue to develop,

the growing global demand for energy must be met in concert with responsi-

ble actions on climate change. Balancing supply and demand will require more

efficient use of energy and the full utilization of both conventional and innov-

ative sources of energy into the foreseeable future.

“There are potential solutions available – that is, if we can rally public

support and political will, and build a consensus for action,” concludes

Mulva. “If we fail, our country will be stuck in a worsening situation. We will

become ever more dependent on foreign sources of supply. We will remain

subject to wild gyrations in energy prices. And we will only be able to sit

and watch as the climate changes around us.”

Whatever happens, meeting the twin challenges of taking action on cli-

mate change and providing adequate and reliable supplies of energy will re-

quire technical innovation, resource commitments and responsible stewardship

by energy producers and consumers alike. It will require some risk-taking, but

given Mulva’s previous track record in successfully balancing risk with oppor-

tunity, don’t bet against ConocoPhillips meeting these challenges head-on. n

43www.ngoilgas.com

Access to resources is severely restricted in the

United States and abroad, and the American oil

industry must compete with national oil

companies that are often much larger and have

the support of their governments. US companies

can only compete directly for seven percent of

the world’s available reserves, while about 75

percent is completely controlled by national oil

companies, and is not accessible.

However, ConocoPhillips is actively working

to bring more energy to the market, explains John

Lowe, Executive Vice President for Exploration

and Production at the US giant. “Over the

past six years we have reinvested –

on average – 106 percent of our

income. In 2007, we earned $12

billion but reinvested $13

billion – and we have over $15

billion in investments planned

this year. This investment

includes finding added

supplies of oil and gas,

expanding refining capacity

and continuing to research and

bring renewable and alternative

fuels to the market.”

In North America, ConocoPhillips is

drilling exploratory wells, developing the

Canadian oil sands and building infrastructure.

But Lowe insists that more must be done to

explore the vast areas of the US that are off-limits

due to drilling moratoriums. These areas could

more than double the nation’s oil and gas

reserves. “The US is in a global race for energy,”

he says. “We are competing against national oil

companies that are far larger, and that enjoy

preferred access and governmental co-operation.

We must move beyond today’s adversarial

relationship and start working together to find

real solutions. US oil companies should be

viewed as the key to the energy solution – not as

scapegoats, but as assets in this global energy

race. We must be allowed to compete on level

ground for the benefit of our country.”

THE CHALLENGE FOR THE US


Cisco.indd 44 9/12/08 10:54:49

Cisco.indd 45 9/12/08 10:54:51

Access

46 www.ngoilgas.com

Fluctuating oil prices are symptomatic ofsupply and demand struggles in thecurrent market – and in order to controlthem, the US needs to realize that supplycan and should start at home. In anexclusive interview with O&G, BudAlbright, Under Secretary for Energy atthe US Department of Energy, revealswhy it is vital we start now.

By Rebecca Goozee

THE BIG INTERVIEW

denied

BUD ALBRIGHT_NEW:dec08 9/12/08 16:14 Page 46

Look at any analysis for the future of the oil

and gas industry and it is fraught with sup-

ply and demand difficulties. As regulatory

pressures continue to impact operations,

costs soar and reserves become more diffi-

cult to extract, the pressure to meet future

energy demand mounts higher every day.

World demand is currently expected to increase up to 57

percent by 2030, with many commentators concerned over

the future availability of oil and gas reserves to meet that

demand. Bud Albright, Under Secretary for Energy at the

US Department of Energy believes that it is crucial we act

now in order to see returns in the future, and it is even

more important that the US take responsibility for creat-

ing their own resources.

“Demand in the world is up,” he says. “China and

India are growing exponentially, and their demand is in-

creasing accordingly. We have limited oil and it looks like

this problem will be around for a long time in the future,

unless we take the intiative and get the ball rolling.”

But, these problems didn’t come about overnight, and

the solutions won’t either – and certainly not without in-

creased access to supplies. Albright believes that there are

several billion-barrel areas that haven’t yet begun to be ex-

plored, including the Arctic and the outer continental shelf.

“But it doesn’t matter how much supply there is if there is

no access to it,” he says, comparing the situation to a

locked strongbox: “If there’s plenty of money in the world

47www.ngoilgas.com

OPEN ANWR

In Northern Alaska, ageophysicist stands near asnow tractor equipped to

generate seismic data to showthe presence of oil or gas.

Many experts believe the USwill need to open up areas

such as Alaska’s Arctic NationalWildlife Refuge (ANWR) to

drilling if it is to successfullymeet rising demand and ensure

energy independence.

ANWR reserves are estimated at 10 billon barrels of oil by the US Geological

Survey. At full production, ANWR would add a million barrels per day to US produc-

tion. The amounts of natural gas are also astounding, with the survey estimating that

there were 150 trillion cubic feet of conventional gas and 590 trillion cubic feet of gas hydrates.

In addition, there is thought to be an uncalculated amount of drillable coal-bed methane in an

estimated 13.7 billion tons of indicated coal resources.

Drilling is permitted in the Beaufort Sea on Alaska’s north coast. On the west coast,it is not allowed under the general prohibition against offshore drilling

New technology also allows long distance slant and horizontal drilling from a singledrill site. BP is now planning such an eight-mile drill

The Beaufort Sea offshore is shallow and production is done fromman-made islands.A single platform allows for many slant wells

Estimates of recoverable oil are based on a $40 barrel price, but would see muchhigher prices with oil at $100-plus per barrel – the higher price justifies more costlydrilling and secondary recovery engineering

The Alyeska Pipeline once pumped 2.1 million barrels of oil per day – it’s now at700,000 and declining seven percent annually


but it’s all locked up in a safe, it doesn’t do

you much good to proclaim the wealth of the

vault.” He believes that we need to ensure

that existing resources are developed and at

the same time research the way things will be

done differently in the future.

“One of the things that frustrates me is

that so many people take an all or nothing

approach, that if we expand our petroleum

resources then we won’t do any alternative

work, and won’t look to better and smarter

energy production,” says Albright passion-

ately. “I don’t buy it. As long as the research

continues we’ll see scientific progress and

developments – ok, not by next Wednesday,

but these developments will change things

dramatically as we go forward over the next

five, 10, 20 years. To transition through the

time until these new resources work, we are certainly going to need

the petroleum resources that we currently do have, and it is impera-

tive that these resources are expanded.”

ImportsThe US currently imports around two-thirds of the oil it uses. With

energy security such a key issue, America’s reliance on imports has to

change. Albright argues that it is imperative that the Arctic National

Wildlife Refuge (ANWR) is opened up as soon as possible, along with

the outer continental shelf. He also says that it is critical that resources

in oil shale and sands are developed. “We need to get smarter about

our usage, conserving more and wasting less. But along with de-

creased demand we need increased supply, particularly within the US

itself,” he says.

He goes on to explain that the US is already seeing some decrease

in demand in specific sectors and industries. Decreases have been iden-

tified in the transportation and industrial industries, but not so much in

the residential and commercial sectors. “The market will have to work

in a way that will send signals in order that people change behavior,

embrace new technology and therefore change usage patterns,” ex-

plains Albright.

So far, he believes that the US has failed to develop resources in a

way that has met predictable need – in a sense, the US can be seen as

a victim of its own inaction regarding oil and gas supply. “A good ex-

ample of that is the failure to develop ANWR,” says Albright. “Many of

the reasons put forward tend to involve the safety of development of

those resources, primarily from an environmental perspective. But with

regard to the environmental argument, surely developing our own re-

sources makes a whole lot more sense than relying on foreign imports.”

The 19-million acre ANWR park lies in the northeast corner of

Alaska and is about the size of the state of California. The Coastal

Plain of ANWR is the part being considered for oil and gas develop-

ment since it potentially holds billions of barrels of recoverable oil and

trillions of cubic feet of recoverable gas. The Coastal Plain is around

2000 acres, or one-fifth the size of Washington DC’s Dulles

International Airport. “That footprint is

shrinking, as the latest technologies use

even less acreage than that. We can develop

our own resources and we can drill safely in

an environmentally prudent and responsible

way, we just need to get about doing it. And

if we don’t we are being short-sighted and

unwilling to meet our own needs, which po-

tentially could be catastrophic for the future

of oil and gas in the US.”

OpportunityFourteen years ago, the Senate passed a

bipartisan bill that would allow the develop-

ment of ANWR. The president at the time, Bill

Clinton, chose to veto the bill, and that veto

has so far been sustained. Because ANWR is

an important wildlife habitat, some people are

concerned that development would hurt the land, endanger wildlife and

not even recover enough oil to make the effort worthwhile.

48 www.ngoilgas.com

World demand iscurrently expectedto increase up to

by 203050%

Bud Albright


TGSnopec.indd 49 9/12/08 10:55:14

50 www.ngoilgas.com

Albright believes that had Clinton’s veto not been sustained, around a

million barrels a day would be coming out of the site today. “One of the ra-

tionale at the time for vetoing was that we wouldn’t see this oil for 10 years

anyway and that we needed something with immediate results. That was

14 years ago, and I think it is fair to say that we’d be getting that oil now if

we hadn’t been so short-sighted,” he says. “The old saying is that the best

time to plant a tree is 30 years ago. The second best time is today. And it’s

that kind of short-term thinking that has gotten us into the situation we’re

in today.”

The outer continental shelf is an-

other area that has remained under

wraps for years, denying the US access

to millions of barrels of oil. Analysts es-

timate that there are somewhere in the

region of 115 billion barrels available.

Although there has been a lapse in the

outer continental shelf ban it still re-

mains to be seen what will happen re-

garding the ban and whether it will be

reinstated. Albright believes that if

Congress truly allows the development

of these resources then the US could

begin almost immediately to develop

those, particularly in areas where infra-

structure is already inplace, suchas the

coast of California. However, it will still

take a number of years to develop,

probably around eight to 10 years.

“It’s a long-term process and it

won’t be something that happens

overnight,” saysAlbright. “We’re talking

about billions of dollars of investment

and there will be studies and test drills

on the leases that companies get. A

platform requires about $3 billion of in-

vestment so these companies aregoing

to want to be pretty sure that they get

oil when they drill. It’s a long-term

process with a long-term answer.”

TechnologyManyexpertsbelieve that rather thanopeningupnewfields,weshould

concentrate on maximizing returns from existing fields. While Albright be-

lieves that maximizing returns should surely exist for every oil or gas field

currently in use, he goeson toexplain that the reality is thatwe need todrill

more holes to get more oil. “Frankly, we need to stop playing games,” says

Albright. “With prices the way they are and having gotten to where they are

because of our own inaction and because of political games that have been

played for years, it’s time to stop that and get serious about recognizing the

problem, acknowledging that supplies are down and without additional re-

sources we aren’t going to get out of this unless we develop alternative

sources as well.”

An alternative option that the Canadian oil and gas industry is current-

ly utilizing includes producing oil and gas from difficult tar sands and shale

fields. This type of extraction is predicted to hold up to a trillion barrels of

economically recoverableoil. Toput this inperspective, thewholeworldhas

useda trillionbarrels sinceoilwasfirst used. It is anticipated that theentire

world’s supply could come from thisoil sandandshale for thenext 30years.

Albright believes that Canada is developing these resources incredibly

well and is seeing a great deal of product from them. While oil shale has

gained attention as analternative energy resource, there are some environ-

mental issues involved in the extrac-

tion and production of oil shale,

including land use, waste disposal

and air pollution. Environmentalists

oppose the production and usage of

oil shale as it creates even more

greenhouse gases than conventional

fossil fuels.

But despite the concerns around

alternative resources, demand for oil

will continue to intensify and one way

to meet these demands involves new

technology. Albright believes that in

terms of transportation, fuel cells and

plug-inhybridshavepromise, asdoes

diesel, crucially because it is available

today. “It’s cleanand it delivers almost

30 percent more efficiently,” he says.

“By using diesel you have already

found 30 percent more fuel for every

vehicle on the road, and we will con-

tinue to see tremendous advance-

ment in this area.”

Albright goes on to explain that

theDepartmentof Energyareworking

on other alternatives such as biofuels

and cellulosic ethanol. “Nobody

knows exactly what’s going to work

and what isn’t. Some of it will proba-

bly fall on its face but some of it will

probablydoquitewell andchange the

way we do things. I don’t know exact-

ly where we’re going but I do know we’re going to be better in the future. I’m

extremely optimistic about our ability to meet the challenges.”

Future focusSohowdoesAlbright see theoil andgassectordevelopingover thenext

few years? “The government should no longer be in the business of making

determinationas tohowthebusiness isdeveloped,”he replies. “Weought to

be in the business of seeing oil and gas businesses have access to resources

so they can fashion their business plans to meet America’s, and the world’s,

needs going forward, and let them determine the best way to do that.

“Inmyexperienceat least, how they look, how they formandwhat their

profile is should be determined in the private sector, with the government

clearing a path to make sure that there is access to what’s needed.” �

STRATEGIC GOALS

The Department of Energy’s overarching mission is to advance

the national, economic and energy security of the US. The

department’s strategic goals to achieve the mission are

deigned to deliver results along five strategic themes:

Energy security: Promoting America’s energysecurity through reliable, clean and affordable energy

Nuclear security: Ensuring America’s nuclearsecurity

Scientific discovery and innovation: StrengtheningUS scientific discovery, economic competitivenessand improving the quality of life through innovationsin science and technology

Environmental responsibility: Protecting theenvironment by providing a responsible resolution to theenvironmental legacy of nuclear weapons production

Management excellence: Enabling the missionthrough sound management

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The search for black gold can be a challenging experience. O&G’sRebecca Goozee caught up with Devon Energy’s Rick Mitchell to findout why effective exploration requires more than a tattered treasure mapand a sense of adventure.

EXPLORATION FOCUS

Rick Mitchell ed new txt:dec08 09/12/2008 15:55 Page 52

As job titles go, they don’t come much more exciting than

‘head of exploration’. The very word conjures up images

of adventure and derring-do, of pushing knowledge to

the known limits, of going beyond the frontiers of what

is possible. “We call it the Indiana Jones factor,” laughs

Rick Mitchell, VP of Drilling and E&P Services at Devon

Energy. “We like the challenge of finding ourselves in re-

mote areas and supporting our divisions in setting up operations from

scratch, where no drilling has been done before.” And while his role does-

n’t necessarily require him to carry a bullwhip and a revolver, finding the

buried treasure can still be a challenging experience.

Of course, just like Hollywood’s favorite fedora-wearing hero,

Mitchell’s job isn’t all fieldwork. Diligent research and hours of prepara-

tion go into making sure the search for oil and gas is a productive one; he

can typically be found going over drilling

reports and talking with various divisions

on what is working well, where there may

be a problem and assisting and support-

ing the staff. “I focus quite a bit of energy

on our Devon Procurement Steering

Committee,” he explains. “It’s the group

that oversees the major procurement of

goods and services within our company.”

In addition, Mitchell is in charge of the

Surface Controlled and Data Acquisition

(SCADA) group, which handles the remote

monitoring of wells and facilities as well

as Devon’s major capital projects group.

“My job entails many different things,” he

says. “We’re responsible for supporting

the seven different business units within

the corporation, and we’re also the sup-

port group that tries to help out and sup-

port all our exploration and production

groups, as well as our marketing and mid-

stream group. There’s a lot to do.”

And while at first glance his role

seems more average Joe than Indiana

Jones, Mitchell is facing a growing number of challenges within the indus-

try. He believes that the top challenge is access, which is becoming in-

creasingly difficult. “That’s a common issue for all oil and gas operators,”

he says. “At Devon, particularly over the past year, the E&P divisions have

done an outstanding job of securing additional lands and picking up

acreage from Canada through the US, and internationally to where we con-

tinue to access and gain land at reasonable prices that will help us main-

tain profitability.” Nevertheless, Mitchell is a firm believer that more needs

to be done to open new areas for drilling if the US is to meet its energy

needs and achieve energy independence.

The other main challenge is controlling costs and ensuring the liabili-

ty of operations. Costs have grown significantly since 2000, doubling across

the board for just about every company in the industry. One of the ways that

Mitchell’s team has been supporting the E&P divisions in controlling costs

is by ensuring efficiency in operations so that there is as little downtime as

possible. “A deepwater drilling operation currently costs about $8 or $9

per second, a shallow operation is around $5 per second and a US onshore

operation about $0.50 a second,” he explains. “Time is money, and when

you can focus on efficiency and minimize problems, that’s one of the top

ways in which you can control your costs.”

To help meet this challenge, Devon’s E&P divisions spend a great deal

of time sharing best practices and lessons learned so that when they have

a great market success rate or a good level of performance, it can be shared

across divisions so problems are less likely to occur. “We capitalize on the

learnings and experiences of others, which helps us to hit the next level of

performance,” says Mitchell. “We spend a lot of time in supporting the di-

visions in their experimenting with new technologies in a controlled envi-

ronment, and in this way we can find that next level of technology that helps

us improve and save costs even further.”

Expansion and diversityAs the largest US-based independent

producer of oil and gas, Devon Energy pro-

vides three percent of all the gas consumed

in North America and also produces about

600,000 barrels of oil a day. Since Mitchell

joined Devon Energy in 2003, the indepen-

dent oil giant has expanded to incorporate

a diverse portfolio of exploration and pro-

duction activities, including conventional

oil and gas exploration and production in

Canada, as well as good growth in heavy oil

production and development in Canada

and the deepwater Gulf of Mexico. The

company also has a strong US convention-

al and non-conventional oil and gas pro-

duction operation on the US onshore.

“After various mergers took place in

the late 1990s and early 2000s, we had

many different exploration blocks and areas

all around the world, and Devon has now

consolidated those into a strong and fo-

cused approach,” explains Mitchell. Since

2003, Devon has strategically defined Devon’s international approach and the

company now works in just three main areas, China, Brazil and the former

Soviet Union. “We have a wide variety of activities and projects throughout

the company, and we’ve continued to grow production year over year, and

that’s very exciting for us.”

Mitchell joined Devon Energy as Director of Deepwater Drilling and

Facilities, a unit that he is still involved in today. In 2007, deepwater exploration

accounted for around 10 percent of Devon’s portfolio, and the company is keen

to keep expanding. “Right now, we have three deepwater rigs operating for

us and our activity level is expanding,” he explains. “Over the past five to 10

years, Devon has spent a lot of time focusing on expanding its deepwater port-

folio, and preparing some high impact and high potential prospects to drill.”

In terms of its deepwater exploration, Devon is concentrating on three

main geographical areas, the first being the Gulf of Mexico. So far the compa-

ny has four proven discoveries with partners in the Lower Tertiary trend, of

53www.ngoilgas.com

“We’ve got fantastic deep-water andinternational teams at the moment and you

will see Devon continue to explore anddevelop its existing discoveries”


which several are starting the drilling phase now – the Cascade project is

one such example, and Devon expects to see the first production from the

project in 2010. “We are also partners in Jack and St. Malo with Chevron,

and the Kaskida project with BP, so we’ve got some very good projects un-

derway, with drilling expected for both projects by the end of the year,” says

Mitchell. “We are working very closely with our partners, and we’re work-

ing such that we can accelerate, get these projects moving and a return on

production as soon as possible. We don’t have firm start up dates for Jack

and St. Malo and Kaskida yet, but we think they’ll probably be in the 2013

timeframe.”

There are two other areas that Mitchell is excited about, including

deepwater China, which he considers a frontier area, citing the one signifi-

cant discovery there by Husky Oil and Gas. Deepwater Brazil is another area

with numerous prospects. Devon is currently one of the largest exploration

and production companies with leaseholds in the area. On September 30,

Devon announced the preliminary results of an exploratory pre-salt well in

the Campos Basin offshore Brazil. “We’ll be continuing with a rather ag-

gressive and exciting exploration program in Brazil for several years to

come,” he says.

TechnologyTechnology has been vital in improving operations at Devon, and is

quickly transforming E&P operations. With an evermore prevalent focus on

horizontal drilling in the US and Canada, Mitchell has seen much improve-

ment in the capabilities of the down hole drilling equipment to help drill

horizontal wells. The number of horizontal wells drilled per year was about

four percent back at the beginning of the century; now the figure stands at

around 12 percent. Mitchell predicts a further focus on drilling technology

that incorporates horizontal drilling and completion techniques. “In 2009,

we believe that Devon could be drilling as many as 700 horizontal wells,

and that’s a key area for us in a way, which helps us to become more suc-

cessful and help our company grow,” he predicts.

He is also tremendously excited about some of the new horizontal

completion technologies that are currently coming online. “These comple-

tion technologies allow us to drill and complete longer intervals so that we

can stimulate more zones and maximize the production and reserves per

well in a timely and cost-effective manner,” he says. Of course, one of the

key changes that technology has made is that in almost every circum-

stance, safety techniques have been improved, from rig designs to the way

in which the equipment is handled. Mitchell also believes there has been

a focus on making things more efficient and Devon’s E&P divisions are

doing a great job in this area.

Technology has also made it easier to access the reserves that lie in

the most inhospitable places in the world, and possible to work with un-

conventional oil deposits such as oil sands. Although Mitchell admits that

there have been challenges in these areas, he goes on to explain that there

are a relatively large group of employees at Devon that have spent a great

deal of time working in difficult places and have the experience to make

these opportunities successful.

“It goes back to that Indiana Jones factor,” he jokes. “Even though it’s

difficult, you have to set up everything yourself and get going. There are a

lot of people in our company who like that challenge and enjoy it – we cer-

tainly don’t shy away from that side of operations.”

54 www.ngoilgas.com

Drilling rig inBarnett Shale

Not long ago, the Barnett Shale formation in north Texas represented

a geological puzzle that had gone unsolved for more than 40 years.

Geoscientists knew vast energy reserves were sealed inside the tight,

black rock formed from organic material deposited 325 million years

ago. The challenge was recovering them.

Through a lot of hard work and a great deal of unconventional

thinking, Devon unlocked the stingy shale known for its low porosity and

high complexity. Engineers use a method known as fracturing to foster

permeability in the shale. Crews inject a mixture of fresh water and sand

into the rock at high pressure to fracture the formation and release gas

trapped inside. The technology has given Devon access to vast reserves,

transforming this challenging area surrounding Fort Worth into one of the

nation's most important natural gas producing fields.

In all, Devon has more than 3500 wells producing in the field.

The company uses innovations such as horizontal drilling and

advanced seismic technology to ensure each well reaches its full

production potential. Devon is optimistic about its future production

growth in the Barnett Shale and will continue to expand and recover

gas reserves contained under a dominant lease position of more than

715,000 net acres.

Through Devon's pioneering effort, the Barnett Shale has

emerged as the largest natural gas field in Texas. Within the last few

years, Devon has made significant advances in developing and

enhancing production from the Barnett. The north Texas area has

potential to remain one of the country's most vital energy resources

for many years to come. Devon's accomplishments in the Barnett are

an example of technology and innovation helping meet growing

energy demands by finding new ways to tap North America's

remaining reserves.

THE BARNETT SHALE STORY


JAO.indd 55 9/12/08 10:55:55

EnvironmentEven in more remote locations, the onus is on improving productivity and

reducing costs while making safety targets and environmental regulations.

Mitchell says that Devon uses the same model throughout the organization

regarding environmental and social issues. Devon has always put the envi-

ronment and people first, which is a part of what he calls, “being a good cor-

porate citizen”. The company has an excellent reputation, says Mitchell, and

has never had any problems. “When you take the time, effort and precautions

to put the people and the environment first, the challenges don’t seem to be

as great, and you are accepted by more people in the community,” he explains.

“People tend to want to help you and be a part of the team if they see you as

a good corporate citizen.”

Indeed, a major part of the exploration process is seeking input upfront

about the areas Devon is working in, and Mitchell explains how employ-

ees will go in and meet with the local communities in the environment to

56 www.ngoilgas.com

FACT FILEHeadquarters: Oklahoma City

Founded: 1971

Employees: 5000+ worldwide

Production: 224 million barrels in 2007

E&P Budget: $5.6-$5.9 billion in 2008

make sure all goals are aligned from day one. “It makes a lot of sense to

understand the area you’re working in, and who you’re working with,” he

points out. “And when we collaborate with the local people, we get poten-

tial problems sorted out in advance, and typically costs and performance

then fall right in line and you don’t have to deal with unforeseen events,

which can be costly and cause delays.”

Future focusIn terms of the future, Devon plans to maintain its strong presence in

Canada, where Mitchell wants to continue the good work in the heavy oil

area. He believes that Devon is currently leading the way in producing nat-

ural gas from the Barnett Shale in North Texas, the Woodford Shale in

Southeast Oklahoma and other shale plays that continue to emerge, pre-

dicting growth in these areas. It is, he concedes, an exciting time.

Mitchell also says that work will continue with the ultra-deepwater pro-

grams, such as exploration in the Gulf of Mexico, Brazil and China. “We’ve got

fantastic deepwater and international teams at the moment, and you will see

Devon continue to explore and develop its existing discoveries. We expect to

do more of the same, executing the strategies and programs that we have be-

cause we believe, right now, that these are the right places to be and the right

things to do, and we’ll do our best to continue growing the company.”

He does, however, sound one final note of caution: for the industry to truly

progress, more must be done to address the talent shortage. Much has been

achieved already, but even so the industry cannot afford to take its eyes off

the prize. “Everybody is just so busy right now,” he concludes. “We’ve got lots

of new and relatively inexperienced people in the industry. It takes a lot of time

and extra effort for us to ensure that we’re protecting our people and the en-

vironment, first and foremost, and then are able to execute and perform at a

high level of expectation with all the new things going on and the significant

levels of activity. It’s a challenge, but one we’re enjoying meeting.” n

Ocean Endeavor – a fifth generationsemi-submersive drilling rig currentlyunder contract by Devon in thedeepwater Gulf of Mexico.

Devon’s worldwide portfolio of undeveloped oil and gas properties provides

an extensive inventory of exploration drilling opportunities to enhance the

company’s potential for sustained growth. Devon’s production is weighted

toward natural gas and most of its operations are in North America.

� 64 percent of production is clean-burning natural gas

� 36 percent is oil and natural gas liquids, such as propane, butane and

ethane

� More than 90 percent of both production and proved reserves are in

North America, including the US onshore, Canada and the Gulf of

Mexico

� Devon produces 2.4 billion cubic feet of natural gas each day, or

about three percent of all the gas consumed in North America

� About 40 percent of Devon’s gas production is from unconventional

sources, such as the Barnett Shale in north Texas, and coalbed natural

gas fields in New Mexico, Wyoming and Canada

OPERATIONS


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of geophysical information available and the

survey objective, the focus may range from

structural interpretation through to develop-

ment of rock property models. All share the

common objective of the use of potential fi eld

data to reduce the time and expense required

to progress the exploration effort to the next

milestone.

How have advancements in subsurface data

acquisition given oil and gas exploration

companies better, more accurate subsurface

geology data in recent years?

Neil Dyer. From ARKeX’s point of view, as

suppliers of potential fi eld data and inte-

grated interpretation, we see the principal

advancement in our fi eld to be the improve-

ment in provision of high-resolution coverage

of multiple geophysical datasets in addition

to seismic data. Interpretation methodol-

ogy is working towards the goal of combined

interpretation to produce an Earth Model

compatible with gravitational, electrical,

magnetic and seismic observations. These

endeavors require acquisition technology to

deliver datasets with compatible resolution

between the data types. Recent surveys ac-

quired with this activity in mind have shown

that integrated interpretation of potential

fi eld, seismic and surface observations can

add valuable constraint, particularly where

source coupling, access problems or illumi-

nation defi ciency hinders a conclusive seis-

mic interpretation.

What are the challenges that the oil and gas

industry has to overcome in acquiring reli-

able data?

ND. As drilling capabilities extend to more

extreme environments and smaller targets

so must exploration technology improve in

accuracy to serve the effi cient deployment

of these resources. ARKeX strives to pro-

duce data to support a robust, scientifi cally

driven Earth Model earlier in the exploration

cycle. We are required to do this rapidly and

accurately over a wide range of terrain and

climatic conditions. Our challenge in this,

as across much of our industry, is to foster a

rebalancing of the exploration effort towards

a wider range of exploration methods and

the intelligent integration of those methods

to produce a knowledge product greater than

the sum of its parts.

What developments are on the horizon in

terms of new technologies and how will this

impact on your work?

ND. ARKeX and others are developing a new

generation of high-resolution gravity gradi-

ometer that will enable moving platform grav-

ity gradiometry to be performed in a much

wider range of operating modes than are cur-

rently feasible. The increased resolution may

be applied either to increase survey planning

fl exibility by enabling measurement at greater

distance, or to increase the ultimate resolution

of the survey and decrease acquisition time

through increased resilience to sub-optimal

acquisition conditions. Similar developments

are in progress in magnetometry and in elec-

tromagnetic methods. Together with techni-

cal development in integrated interpretation

methodology, these new instruments will

lead potential fi eld methods to new degrees of

resolution. This enables meaningful contribu-

tion to exploration from traditional territory in

basin evaluation to prospect level analysis.

Tell us about how your products and services

are aiding the industry?

ND. ARKeX is providing potential fi eld surveys

at high-resolution to the oil and gas explora-

tion industry. We provide interpreted products

through our BlueQube and Earth Modeling

services that enable the full benefi t of the

dataset to be realized. These services inte-

grate the interpretation of seismic, borehole,

surface geology and remotely sensed data

with potential fi eld observations acquired by

ARKeX or others. Depending upon the type

The next milestone of explorationNeil Dyer, VP of Geophysics at ARKeX, explains how advancements in fi eld data technology are improving exploration efforts in the oil and gas industry.

“Our challenge is to foster a rebalancing

of the exploration effort” – Neil Dyer

EXECUTIVE INTERVIEW

ARKEX.indd 58 9/12/08 15:11:38

Arkex2.indd 59 9/12/08 10:56:35

60 www.ngoilgas.com

Vincent believes that California has a

big part to play, as it is an offshore area that

is known for its tremendous amount of re-

sources. As infrastructure is already in place

here it is possible for a development to spring

up fairly quickly, compared to some of the

places on the East coast for example. “Cali-

fornia is attractive because it has previously

been drilled in, and there’s a lot of data about

the area, particularly offshore of the south.

In terms of getting resources to market more

quickly, California would be one of the places

that would be prioritized,” explains Vincent.

It would be possible to get products to

believes that much of the outer continental

shelf has potential. “The United States Geo-

logical Service has estimated the amount

of available resources throughout the US,

finding substantial resources,” he says. “The

interesting thing about their estimates is that

they’re based on decades-old data. Now,

the industry has made great strides with

technology in the last 10 to 20 years, so our

belief is that using modern technology, par-

ticularly with regard to the ability to process

and analyze seismic data, that the resource

base is probably larger than what’s currently

estimated.”

60 www.ngoilgas.com

One of the major issues that the US

oil and gas industry face is access to

resources. And when the extension

of the ban on drilling the outer continental

shelf lapsed in September, the opportu-

nity to access a huge amount of energy

resources shot sky high. Eighty-five percent

of America’s continental shelf has been off

limits since 1985, in other words the industry

has been unable to get access to those areas

that contain an abundant amount of natural

resources.

Bruce Vincent, VP of the Independent

Petroleum Association of America (IPAA),

Will access to the outer continental shelf change oil and gas exploration and production in the US? O&G investigates.

Offshore opens up

EXPLORATION FOCUS

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61 www.ngoilgas.com 61 www.ngoilgas.com

market within two to four years, he believes,

compared to fi ve to 10 years if you look

offshore of the east coast. “It’s a matter of

where the opportunities are, the existing

data sets and the infrastructure that may or

may not be in place.”

While the ban expired in September, it will

take time before the industry is able to start

making things happen. Firstly, the Minerals

Management Service, which oversees the

Offshore Leasing Service, has to revise the

2007/2012 fi ve-year plan, which means it will

probably take about two years for any new

leases to be issued. “It could be 2010 before

exploration production companies can begin

activity on the outer continental shelf,” con-

fi rms Vincent.

But while some areas may take up to a

decade to produce new resources, the sooner

it is started the better. “I learned a long time

ago that things take time to do, and if we

don’t even start we will never get there.” He

continues: “We need to give industry access

to these areas. The industry is an incredibly

technologically advanced, nimble industry

that, given time, will tap the resources and

make them available to the US and improve its

energy security position.”

There has been a shift in public opinion to-

wards the offshore drilling ban, and in recent

polls, the majority want Congress to lift their

ban on offshore drilling. Vincent believes that

there are a couple of reasons for this. Firstly,

the American public realizes the need for the

industry to develop additional resources,

both in reducing imports into America and

to create more supplies for the world. “The

supply/demand balance for oil and natural

gas is fairly thinly balanced, and we’ve seen

how oil just this year alone shot up to almost

$150 a barrel, and the best solution for that

is to increase more supply, as well as try and

become more effi cient and conserve to reduce

demand,” says Vincent.

Secondly, Vincent believes that the

American public is aware that the industry has

a 99 percent record of exploiting oil and gas

production in an environmentally responsible

way. People fl ock to the beaches offshore in

Texas and Louisiana where the industry has

drilled successfully for decades. “The last

real offshore oil spill of signifi cance was back

in 1969,” explains Vincent. “It was in Santa

Barbara off the coast of California, and that

still rings in some people’s memories, but for

decades now, the industry has successfully

explored resources in a responsible manner.”

TechnologyOne reason that the industry has been

able to successfully exploit offshore is tech-

nology, if it wasn’t for technology then the in-

dustry wouldn’t be where it is today. Vincent

believes that without it he easily sees oil at

$250 a barrel. “Tough times help drive people

to be creative and innovative,” he says. “The

80s and much of the 90s were diffi cult times

for the oil and natural gas industry, and what

they did is say, ‘We can’t do anything about

the price, but we need to focus on the things

we can control’.”

The oil and gas industry is a techno-

logically advanced business and the leaders

have created many new technologies from

the geoscience/geophysical side to under-

standing where oil and gas might be, to

completion technologies that enable you to

get hydrocarbons out of the ground in places

that you couldn’t before. “It’s been those

technological advances that have allowed the

industry to continue to grow reserves in pro-

duction and exploit the vast resources that

are available to us today,” says Vincent. “The

best example of that is natural gas, which is

projected to grow four percent in 2008 alone.

It’s remarkable quite frankly, to be able to

grow production on a base that big. But it’s

due to the development of technologies that

have allowed the industry to tap into uncon-

ventional resources.”

These are resources that the industry has

known about for decades, but it is only now

that they are about to extract the hydrocar-

bons in a commercial and economically viable

way. It is through horizontal drilling, comple-

tion activities and multistage fracture simu-

lation technologies, for example, that these

unconventional resources have been able to

become economic.

However, challenges still exist in the

industry. Drilling tens of thousands of feet

underground in high-pressure, high-temper-

ature environments is extremely challenging

and the deeper the drill the better you need

to be. “We have to become more effi cient in

order to drive costs down. The fi nancial crisis

has triggered an economic downturn and trig-

gered a signifi cant reduction in the price of oil

and gas out there. In terms of the industry’s

perspective, we’ve been through these cycles

for decades and we know how to deal with it –

by driving expenses down,” explains Vincent.

“You need to drive costs down so that you can

continue activities and continue what you are

best at. Technology is one of the things we can

do with that. As it improves for going deeper,

we’ll be able to continue to unlock resources

that are available, particularly in places like

the Gulf Coast.”

Acres under lease: 400,505Active leases: 79Producing leases: 43Barrels of oil per day: 63,000Cubic feet of gas per day: 130,000,000Total oil and gas wells drilled: 1290Total development wells drilled: 999Total exploration wells drilled: 328Oil and gas platforms: 23Miles of pipeline: 188Companies operating Pacifi c OCS facilities: 7

Source: www.mms.gov

“For decades now, the industry has successfully explored resources in a responsible manner”

FAST FACTS: PACIFIC OCS REGION

BruceVincent.indd 61 9/12/08 15:11:52

62 www.ngoilgas.com

Whatever the oil price, there will

always be a demand for effective

geoscience support for explora-

tion. Higher prices are inevitably linked to

higher-risk exploration, and this higher risk

– be it the expensive search in deeper water

for reserves, the tapping of unconventional

gas in oil shales or just the continued search

for smaller and less readily defi ned plays in

already producing basins – all require our

geoscience abilities to keep pace with these

changes. When prices are lower, innovation

in geosciences may be the only way of con-

trolling costs, by increasing effective explo-

ration – as occurred through the 1990s with

the arrival of 3D seismic surveys.

AOA Geophysics Inc. specializes in

reducing exploration risk by exploiting

underused, undervalued and innovative

geoscience techniques, and adding value to

conventional exploration activities by inte-

grating and hence using, all available data.

These techniques include electrical, mag-

netic and gravity surveys, high-resolution

seabed mapping for seeps and geotechnical

purposes and groundbreaking innovations in

land seismics.

The company was started by research

scientists and still has that inquiring ethos

– a characteristic that has put AOA in the

forefront of the development of controlled

source electromagnetic (CSEM) acquisition

technology. Along with AGO – now sold to

Schlumberger – AOA helped bring the con-

cept of CSEM to mainstream exploration, and

CSEM is now considered as a valuable tool

for oil exploration companies to extend their

knowledge of an exploration prospect before

incurring drilling costs. However, given that

the understanding of and integration of CSEM

data with other exploration data and its full

utilization still needs support, working with a

trusted partner is critical.

“Our knowledge and experience of

these scientifi c fundamentals is now of-

fered as part of our consultancy services,”

explains Adrian Digby, Director of Business

Development at AOA. “While research may

be our background, practical application is

our strength. With both our exploration and

our geohazards business streams, we con-

tinue to pursue practical solutions rather

than just academic excellence, to decrease

costs and reduce risks for our oil company

clients.”

Three current areas of continued de-

velopment are potential fi eld data, seabed

seep exploration and land seismic services.

“With potential fi eld data – magnetic and

gravity surveys – we felt there was the need

to bring this important data to a wider audi-

ence and not just the limited number of in-

dustry experts using this data,” says Digby.

In response, AOA has developed the Quick

Study, a presentation format of geo-refer-

enced maps to support new basin ventures.

To date, over 60 of these custom-designed

surveys have been produced. “We are now

looking to provide a similar service but on

a multi-client basis, through our publica-

tion partners AAPG,” he continues. “We

anticipate having 10 completed this fall and

made available through AAPG’s Data Base

service.”

Seabed exploration is another area of

expertise. “Our contribution to reducing

risk for deepwater exploration – and in

particular, the real challenge of identify-

ing the existence of hydrocarbon systems

within frontier basins (not something

traditional 2D or 3D seismics reveals) – is

best illustrated by the recently completed

Indonesian mega-survey,” says Digby.

The survey included 400,000km2 of high-

resolution multi-beam seabed data for 10

unexploited offshore basins. The data was

used to identify and classify seabed seeps

for geochemical coring, and the phenom-

enal success ratios in the surveys shows

how signifi cant the application of geosci-

ence knowledge to survey design, survey

control and interpretation is in reducing

costs and improving exploration success in

deepwater environments.

“We are now applying the same inno-

vative thought processes to land seismic

acquisition,” continues Digby. “We have

developed ways of widening the frequency

range of seismic sources, avoiding the orien-

tation bias of geometric surveys, and lower-

ing the costs and environmental impacts of

seismic surveys in general by employing a

series of innovations.”

These improvements will be felt, for

example, in shale exploration by identifying

fracturing orientations and densities more

effectively. The same goes for coal bed meth-

ane. The wider frequency range will also allow

both shallow and deep conventional targets

to be effectively imaged in a single survey.

“The cost and time saving elements of our

new survey designs will benefi t all existing

land-based seismic programs. The environ-

mentally benefi cial impact of avoiding dyna-

mite or vibro sources will, we believe, be felt

positively throughout the survey industry.

“AOA will continue to ask whether there

is a better way to approach all of our geo-

science services,” concludes Digby. “And

this thinking has repeatedly proved, over

the years, that the answer is, ‘yes, there

probably is’.”

Exploring new ideasWhat will the next generation of oil and gas exploration techniques look like?

“When prices are lower, innovation in

geosciences may be the only way of controlling

costs”

INDUSTRY INSIGHT

ADRIAN DIGBY

AOAgeophysics.indd 62 9/12/08 15:11:23

AOAgeophysics.indd 63 9/12/08 10:56:55

64 www.ngoilgas.com

tributor to downtime and overspend. Modern

wells have extremely close tolerance casings,

some are under-reamed and many are hori-

zontal, making radial and axial forces critical.

Solid-body centralizers provide strength and

are often used in these wells, but they are

infl exible, have low stand-off and restrict an-

nular fl ow impeding the formation of a good

cement bond.

The introduction, by Centek, of a single-

piece, non-welded, inherently reliable central-

izer, has fi nally addressed the engineering

failings of traditional centralizers. First used

in the North Sea in 2002 these single-piece

centralizers have brought an end to regular

failures and high downtime losses.

Key characteristics such as zero start

force and zero running force reduce drag

signifi cantly. Reducing torque ensures that

casings can be rotated without wear, in both

cased and open holes, at a deeper level than

before. The low profi le of the single-piece cen-

tralizer improves the fl ow by area. Robustness

of the centralizer was a paramount design and

manufacturing criterion. Flexibility too was a

key area as units must be able to pass well

tight spots, squeeze down, and then expand

back to the original outer hole size.

Pack-off was vastly reduced due to the

increased fl ow by area of these low profi le

centralizers. Units must have a high restoring

force to allow for radial compression, weight of

pipe and well geometry, yet get to the bottom

and give the stand-off required to achieve the

best possible cement job.

Downtime due to centralizer failure is not

an acceptable industry norm, when available

technology has greatly improved the chances

of drilling successfully to depth with reliable

cementation.

Annual downtime during drilling, or

running casing, is only marginally

better than it was 20 years ago. Es-

timates from North Sea operators

suggest drilling effi ciency is still only around

the 50 percent mark, considered across all rig

activities from spud to completion, including

running casing tubing.

Downtime attributed to centralization

problems is reaching sums in excess of $0.5

billion per year. Spiraling rig costs, of all types,

including $1 million per day drill ships, mean

downtime is becoming prohibitively expensive.

Centralizers in real terms are cheap, but when

they fail due to damage, breakages or simply

getting stuck in hole due to fi tting insuffi cient

centralizers at the correct intervals, then they

assume a consequential cost out of all propor-

tion to their price. Centralizer failure costs a

fortune. Why is it that some operators seem

reluctant to spend on risk reduction up front,

but are prepared to pay for downtime in millions

of dollars later?

Most centralizer failures are due to choos-

ing an incorrect unit for the job. Everyday some-

one, somewhere, is pulling casing and leaving

debris in the hole for the simple reason that the

wrong type of centralizer was used. A second

and equally disturbing fact is that the industry

always seems to reward failure. If unit failures

cause massive overspend, then a ‘so what?’ at-

titude becomes common, and the easy answer

is to buy some more of the same and hope they

work better next time.

Since the early 1950s, centralizers have

been of a multipart design and construction,

being either welded or interlocked and having

hinges and pins to hold them together. That

design remains largely unchanged to this day.

When wells were vertical this type was ideal

as the string is in tension and no radial loads

are being applied. However, these units were

oversized to the borehole, had high start and

high drag forces and were weak as far as re-

storing force is concerned. These centralizer

types are still a regular choice in the industry

but they are also the single largest con-

Cliff Berry, sales and marketing manager for Centek, outlines how single-piece centralizers have brought an end to regular failures and high downtime losses in the drilling sector.

For an engineered solution for your well that reduces torque and drag, gets to bottom and offers good zonal isolation it is time to investigate change. Call or email [email protected] and start looking at where saving money protects better than wasting it. The choice, as they say, is yours.

Failure costs

EXECUTIVE INSIGHT

“Centralizer failure costs a fortune. Why is it that some operators seem reluctant to spend on risk reduction up front, but are

prepared to pay for downtime in millions of dollars later?”

Centek.indd 64 9/12/08 15:13:56

Centek.indd 65 9/12/08 10:57:16

With the rising demand for energy in North Amer-

ica, it is imperative that the US expands its key

oil supplies so that future supply disruptions in

other parts of the world do not create such fero-

cious impacts on prices, as witnessed earlier this

year. One option close to home is Canada. The US

currently buys around 1.8 million barrels of oil per day from Canada,

and forecasters predict that number will rise to almost another three

million barrels a day between now and 2020.

The Keystone Pipeline is one innovative solution to link surging

demand with a reliable and stable supply of crude oil. The 2148-mile

pipeline will transport crude oil from Hardisty, Alberta to US Midwest

markets at Wood River and Pakota, Illinois as well as Cushing, Okla-

homa. The Canadian portion of the project involves the conversion of

approximately 537 miles of existing Canadian mainline pipeline facili-

ties from natural gas to a crude oil transmission service, and the con-

struction of approximately 232 miles of pipeline, pump stations and

terminal facilities at Hardisty. The US portion of the project includes

the construction of approximately 1379 miles of pipeline and pump

stations. The pipeline will have an initial nominal capacity of 435,000

barrels per day in late 2009 and will be expanded to a nominal capacity

of 590,000 barrels per day in late 2010. Keystone currently has con-

tracts in place with shippers totaling 495,000 barrels per day, with an

average term of 18 years.

Before construction could begin in the second quarter of 2008,

TransCanada Corp. and ConocoPhillips, who own half the pipeline each

after a deal earlier this year, had to apply to both the US and Cana-

dian governments to get the work permitted. In 2007, National Energy

Board approval was given for two major regulatory applications to

construct and operate the Canadian portion of the project. Keystone

fi nally got the go ahead after receiving a Presidential Permit from the

US State Department in March 2008 to build the line across the na-

tions’ border.

In the wake of pending approval, two North Dakota residents have

fi led an initiated measure that asks voters to stop similar projects in

the future and they have also stated that they hope their petitions will

cause the Keystone project to be moved to a safer location. Their main

concerns are over the perceived environmental impact of the oil pipe-

lines on water supplies on Lake Ashtabula and the Cheyenne River. The

pair believe that water supplies could be quickly poisoned, and are par-

ticularly concerned about the impact of Canadian tar sands oil because

of its chemical content. So far, around four percent of landowners in the

Keystone’s path have refused to sign on the project. Robert Jones, VP

for the Keystone Pipeline, has said that the project remains committed

to the prevention of pipeline oil spills and all other concerns that the

public may have. “The safety of the public and our employees is our top

priority,” he says. “We will meet or exceed industry and government

standards that have been designed to ensure public safety. Our com-

mitment is refl ected in the design and construction of our facilities, as

well as in our operating and maintenance practices.”

Jones goes on to explain that the Keystone Pipeline will use non-

destructive examination equipment to inspect all welds and then apply

a coating to the weld to protect it from corrosion. “Additionally, prior

to being placed into operation, all new pipeline sections are pressure

tested with water up to at least 125 percent of the pipeline’s maximum

allowable operating pressure,” says Jones. Pipeline maintenance

activities will also include regular aerial patrols and internal pipeline

inspection using specialized electronic inspection tools. The pipeline

will also be continuously monitored using state-of-the-art supervisory

control and data acquisition (SCADA) and leak detection systems.

INVESTING IN INFRASTRUCTUREThe Keystone Pipeline project that will connect Alberta in Canada to Illinois and Oklahoma has faced some stiff opposition since its inception. In an exclusive interview, Robert Jones, VP for the Keystone Pipeline, reveals how he fought off the critics.

PROJEct tiMEliNE

2008• Complete receiving regulatory decisions and permits

• Ongoing easement acquisition activities in Alberta, Manitoba, North Dakota,

South Dakota, Nebraska, Kansas (mainline), Missouri and Illinois

• Initiate conversion of exisiting facilities and construction of new facilities in

Canada, North Dakota and South Dakota

• Begin easement acquisition on Cushing section in Kansas and Oklahoma

2009

• Construction of new facilities in Canada, Nebraska,

Kansas, Misouri and Illinois

• Anticipate Keystone in-service by year end

• Keystone Wood River Patoka portion to be completed

• A nominal capacity of 435,000 barrels per day

66 www.ngoilgas.com

PROJECT FOCUS

keystone pipeline.indd 66 9/12/08 15:16:11

challengesAs well as facing resistance, there have been sev-

eral other challenges in terms of getting construction,

maintenance and operation of facilities authorized.

“Preparing optimal construction schedules that con-

sidered all environmental restriction timing windows

was particularly tough,” explains Jones. “For example

in both Canada and the US, Keystone’s construction

program had to be developed to avoid various biologi-

cal resources such as fi sheries, protected plants and

wildlife species to comply with restrictive seasonal

activity time periods.”

Additionally Jones says that there are restric-

tions that affect construction procedures regarding

biophysical resources or soil conservation. “In certain

regions, mitigation measures such as additional con-

struction timing restrictions or altering some proce-

dures were established to reduce or avoid effects to

the natural environment,” explains Jones.

Since construction started in the second quarter of

2008, the Keystone project has faced some additional

challenges that it couldn’t have prepared for. In the

2008 construction season, the project experienced

some extremely wet conditions in Manitoba, North

Dakota and South Dakota as it was one of the wettest

years in recorded history, and the wettest year in North

Dakota history. “But, despite these conditions we are

continuing to make progress on pipeline construction

and are on schedule to meet the pipeline’s anticipated

in-service date,” states Jones.

Design and constructionWhile designing the pipeline and facilities along-

side it, Jones allowed for several new technologies

and materials – for example, high-strength steel and

specialized welding techniques developed especially

2010• Anticipate Keystone expansion in-service by year end

• Keystone Cushing part to be completed

• Nominal capacity expanded to 590,000

barrels per day

• Keystone Gulf Coast portion to be completed

2011

• Keystone Steele City portion to be completed

and pipeline to be up and running

2012

67 www.ngoilgas.com

PROPOSED PiPEliNE ROUtE


68 www.ngoilgas.com

for high-pressure pipelines. Also, all-pipes will be delivered from qualified

manufacturers with a corrosion resistant protective coating to protect

against corrosion for as long as possible.

During the construction process, the pipelines will be buried with a

minimum depth of cover of four feet depending on the land use. However,

in areas of consolidated rock, the pipeline will be buried with a minimum

depth cover of three feet. The permanent right-of-way easements – the

strips of land set aside to constrict and operate a pipeline – will measure

approximately 50 feet in width, although temporary workspace will be

required during construction.

Environmental and social impactsJones has taken several steps to minimize both the environmental and

social effects that the construction and operation of the Keystone Pipeline

will bring. In terms of the environment, Jones says that during construction

the goal is to avoid or minimize any impact on the land. Prior to construc-

tion, an extensive effort goes into collecting data along the pipeline route

and Keystone’s stakeholder consultation process is to engage in dialogue

with landowners and the public to ensure environmental planning efforts

are made to avoid any impacts where possible. The land and environment

data is collected and analyzed by third party experts to ensure impacts

can either be avoided or that environmental protection measures are put

in place to minimize or mitigate any effects to the greatest extent.

“Keystone will also be designed so that it meets or exceeds all ap-

plicable standards for the safe design and operation of oil pipelines and

pumping facilities,” says Jones. “We also plan to develop and implement

an Emergency Response Plan before the pipeline is operational.”

In order to minimize social impact, Keystone’s comprehensive stake-

holder engagement program was developed and adapted to meet specific

stakeholder needs according to the nature, location and potential effects

of the project. Stakeholders include landowners and residents, commu-

nity leaders, including federal, provincial and state, regulatory agencies,

emergency services organizations, special interest groups and co-located

right-of-way owners. Keystone’s community relations program encour- ages stakeholders to learn about proposed activities, be engaged in the

consultation process and be involved in addressing issues and opportuni-

ties that may affect them.

Various approaches to communicate and reach out were employed

depending on the stakeholder or audience. This included project introduc-

tion and follow-up letters, fact sheets and brochures, news releases, per-

sonal visits, meetings and consultations. “We recognize the importance

of incorporating public input into project plans,” explains Jones. “Through

consultation Keystone can address questions and concerns by integrating

important public input into activities, such as sharing project information,

gathering input throughout the planning phase and incorporating feed-

back into its project design and implementing as appropriate.”

As we move into 2009, the Keystone Pipeline is moving at full steam

ahead in order to ensure that the timeline will be met and that the project

will be operating at a nominal capacity of 435,000 barrels per day within

the next 12 months. Jones is confident that this target will be met, and

although there is bound to be controversy in any project of this size, he

believes that the Keystone Project has done all it can to ensure that as

little environmental and social impact is made on the pipeline’s surround-

ing countryside as possible. n

Fact FilE

• The total length of the Keystone Pipeline is 2148 miles.

• Approximately 1379 miles of new pipeline will be constructed

in the US.

• The Canadian portion includes the construction of approximately

232 miles of new pipeline and the conversion of approximately

537 miles of existing TransCanada pipeline from natural gas to

crude oil transmission.

• The new pipeline will be 30 inches in diameter to Illinois and 36

inches from Nebraska/Kansas border to Cushing, Oklahoma.

• The pipeline will be buried with a minimum depth of cover of

four feet, depending on land use.

• The estimates operating pressure of a new pipeline sections will

be 1440 psi. The existing pipeline proposed for conversion to

crude oil transportation will be operated at its current approved

allowable operating pressure of 880 psig.

Robert Jones


Dedico.indd 69 9/12/08 10:57:37

FINDINGTHE VALUEIN RESEARCHFOR THEPIPELINEINDUSTRY

70 www.ngoilgas.com

By George Tenley, President of thePipeline Research Council International

To understand the challenges in achieving value from energy

pipelines research, it may help to consider the realmof prod-

uct development. Think of the cell phone, the safety razor and

medical devices. A great deal of leading edge research has

gone into all three and the end result in each case is a large

market, dominated by a relatively small number of key play-

ers generating billions in salesworldwide. However, the value generated is

not thephysical product itself but the collateral ‘product’ it enables. So, the

value derives from the razor blades, the monthly cell phone services and

the medicine that flows through the device.

In contrast, there has been a reduction in the amount of investment in

research for energy pipelines over the last 25 years. Companies have elim-

inated entire research departments. But, at the same time, there has been

growing investment in research in the exploration andproductionof thehy-

drocarbon energy that pipelines transport. While seemingly everyone has

a razor, a cell phone, andhasbenefited frommedical devices, relatively very

few people understand the essential value they derive from pipelines.

Achieving widespread understanding of the role and value of energy

pipelines andhow (if at all) they are perceived, bothwithin andoutside the

energy industry, is one of the most difficult hurdles to overcome in making

the case for energy pipeline research.

INDUSTRY VIEW

TENLEY ED:29 MARCH 9/12/08 16:31 Page 70

71www.ngoilgas.com

Last year I wrote about the critical need for collaboration as the means

best able to match limited resources with essential research needs. In order

to maximize the research investment, or more accurately, to justify the re-

search cost, the wide diversity in the how, who, where and why of pipeline

operations must, to the greatest extent practicable, be rationalized and di-

rected. Only in this way can the industry achieve the greatest benefit to the

greatest number of industry participants, the customers they serve, and

the public trust that grants them their ‘license to operate’.

Energy pipeline research will remain a viable and sustainable resource

for the world’s vital energy lifelines to the extent that it yields clearly rec-

ognizable benefits that translate directly to the corporate bottom line.

Increasingly, the bottom line for energy pipelines is a function of the inter-

play between several core needs and opportunities, including:

• Sustaining and growing the productivity of pipeline assets operating well

beyond their originally projected design life.

• Building new pipelines to reconcile the rapidly growing demand for en-

ergy and the unconventional and more difficult to access sources of

that energy.

• Assuring the safety and environmental performance of pipelines in

the presence of population encroachment and the intrusive activities

it brings.

For 56 years, the energy pipeline industry has collaborated on research

to confront these issues and the needs they generate. The future success

of this collaborative effort can only be sustained if it can provide solutions

to the industry that generate value across the entire pipeline operation.

That value is being assured through the research program of PRCI, cover-

ing every aspect of pipeline operations conducted by its members in North

America, Europe, Central and South America and Asia, as well as the wider

industry worldwide.

Productivity of existing assetsAlthough pipelines are a fixed element of the energy infrastructure,

they increasingly need to be dynamic and flexible in terms of their purpose

and their operation. This need represents both an opportunity and a chal-

lenge – to maximize pipeline productivity in terms of what they transport,

how much they transport, and the ability to vary throughput to create and

exploit opportunities. Important near-term (one to four years) research that

will help to assure asset productivity includes:

• Enhancing flow efficiency through the development of new materials

and, for oil and petroleum product pipelines (‘liquid pipelines’) the use

of drag reducing agents to enable greater throughput without increasing

use of fuel.

• Establishing methodologies that enable pipeline repair while the pipeline

remains in service, thereby avoiding costly shut downs and loss of ser-

vice to consumers.

• Increasing the operational flexibility of underground storage assets to

improve the deliverability of existing reservoirs and developing new

down-hole damage remediation diagnostics and tools.

• Reducing fuel consumption per unit energy throughput at compressor

and pump stations, including expanded options for cost-effective com-


LincolnElectric.indd 72 9/12/08 10:58:03

73www.ngoilgas.com

Safety and environmental performanceAn unintended release of potentially dangerous commodities from an

energy pipeline can lead to death, injury and economic and social damage,

as well as long-term environmental harm. Because of this, the pipeline in-

frastructure is being held to ever-higher standards of safety and environ-

mental performance, despite a historical record that makes it the safest and

most environmentally sound mode of energy transportation. As the de-

mands for improved system performance increase, the pipeline industry

must find ways to meet expectations – its own and those of the people who

oversee or are affected by it – by the most cost-effective means.

The engineering standards that have underpinned pipeline systems

and their safe operation have been greatly enhanced over the last 50 years

by a strong industry commitment to research.

Today that commitment is expressed in critical

research addressing some of the industry’s

most challenging issues, including:

• Methods to detect, measure and evaluate de-

fects and damage to pipelines primarily from

human activity on and around the pipe.

• Methods to monitor, detect and prevent the ef-

fects of encroachment on pipelines using tech-

nologies in,onandadjacent to thepipeandvia

airborne means.

• Methods to determine the remaining strength

ofdamagedorcorrodedpipe,andfromthatde-

termination to make sound, cost-effective and

risk-based decisions on repair or replacement.

• The reduction of emissions from compressor

enginestomeet increasinglystringentemission

control and monitoring requirements at lowest

practicablecost, therebysaving fuelandavoid-

ing costly modifications or replacements.

The design, construction, operation and

maintenance of energy pipelines are built on a

solid foundation of research and technological

innovation. Once that foundation was the re-

cipient of substantial investment; now it must

defend itself by optimizing its cost in achieving

the value that the pipeline operator demands.

Certainly, rationalizing research costs is not

inherentlyabadthing,because itassures that re-

search, like all other expenditures, must respond to the relevant business dri-

vers facing a company and the industry. Increasingly, these drivers are

universal. While pipeline operators will continue to face the challenge of rec-

onciling the corporate expense for research, collectively the industry’s com-

mitment to collaborative research continues to grow and strengthen. As the

leader in energy pipeline industry collaborative research, PRCI recognizes the

need and value of a leveraging mechanism for research planning, execution

and deployment. This mechanism has proven to be a cost-effective, techni-

cally sound approach to assuring that research results produce real value for

the industry leaders who form the collaboration and the industry at large.�

pressor engine pollutant emission reductions that will enable pipelines

to reserve capital for system expansion and other productivity gains.

Pipeline constructionThe current boom in pipeline construction that is under way in both

developed and developing countries merely reflects the larger reality

of a global voracity for energy. As this demand grows, so too does the

need to find new sources of production. Increasingly, these sources are

being found in harsh environments of extreme climate, geology and

water depths.

But regardlessof the location, theenergyproducedwill travelbypipeline.

Ironically, the challenges may be more difficult in the developed world, where

impediments to rapidly closing the demand-sup-

ply gap abound, from the lack of an adequately

trained workforce to growing difficulties in gain-

ing regulatory approvals and permits.

The role of research in enabling more effi-

cient, cost-effective construction is significant,

and includes the following activities:

• Establishing the technical bases for use of

risk-based alternative design methodologies,

including strain-based design for higher-

strength steels, to better match pipeline de-

sign to the operating parameters of the

pipeline once it goes into service. One key

goal is to enable faster, better and more cost-

effective pre-service welding.

• Developing tougher, more damage-resistant

and defect-resistant steels and the means to lay and weld the pipe (includ-

ing improved weld inspection) faster and at higher performance levels.

• Developing alternatives to pre-service hydrostatic testing to reduce the

time, cost and environmental impact currently imposed by hydrostatic

testing by establishing holistic approaches that draw from recent im-

provements in pipe materials, manufacturing processes, handling and

construction quality assurance procedures.

• Developing novel construction techniques, including for harsh environ-

ments, that are more efficient, produce a smaller environmental ‘foot-

print’ and reduce the time from pipeline design to pipeline operation.

Pipeline Research Council International, Inc.

(PRCI), is a non-profit, membership-based

corporation comprised of 39 operating

pipeline companies on four continents, and

is augmented by 14 associate members

representing steel and equipment

manufacturers, vendors and service

providers. George Tenley has served as

President since 1999.

George Tenley

“Energy pipeline researchwill remain a viable andsustainable resource forthe world’s vital energylifelines to the extent thatit yields clearlyrecognizable benefits”


74 www.ngoilgas.com

CORROSION FOCUS

Bob Herbert, President of NACE International examines the huge cost of corrosion and what can be done to combat the key challenges.

According to the 2002 study ‘Corrosion Costs and Preventive

Strategies in the United States,’ pipeline corrosion costs ap-

proximately $7 billion annually in this country alone. This figure

does not include indirect costs such as downtime and lost productivity.

If you look at the oil and gas industry as a whole – including production,

processing, refining, etc. – the figure is closer to $20 billion annually. The

study found that direct corrosion costs overall for the US is $276 billion

per year, or 3.1 percent of the Gross Domestic Product. We have since

learned that this percentage can be extrapolated to the economies of

other developed countries to determine just how pervasive and expen-

sive the problem is worldwide.

The cost of corrosion study determined that up to 30 percent of cor-

rosion costs can be saved just by using corrosion control technologies

that are currently available. The problem is convincing management that

by incurring the costs of professionally planned and managed corrosion

programs, such as using trained personnel, conducting regular inspec-

tions and implementing the best control and repair methods, companies

actually save significant money over the lifetime of the asset. Unfor-

tunately in many instances it is a matter of “out of sight, out of mind,”

until something goes wrong – and that can be not only expensive, but

catastrophic.

ChallengesWithout doubt the number one concern that oil and gas companies

face today in terms of tackling corrosion in pipelines is the aging infra-

structure – many of our pipelines and related structures have met or are

exceeding their original design lives. Replacing these assets is extremely

expensive and disruptive, so the corrosion industry continues to work

on more effective ways to inspect, rehabilitate, and maintain the infra-

structure. Another challenge involves the expansion and encroachment

of cities in areas where pipelines were once easily accessible. For ex-

ample, a major pipeline buried in an open field may now be covered over

with roads and buildings, challenging corrosion professionals to come

up with more complicated and innovative ways to inspect and repair.

www.ngoilgas.com74

Fighting back

HerbertNace.indd 74 9/12/08 15:12:36

75 www.ngoilgas.com 75 www.ngoilgas.com

Maintaining and replacing worn out parts in hostile environ-

ments is a difficult issue. There are just so many environments that

are considered hostile and conducive to corrosion for various rea-

sons, including fog and humidity, air pollution, proximity to saltwa-

ter and corrosive soils. It is critical that the corrosion professional

understand the specific conditions of the area in order to select

the best materials and corrosion control methods, whether in the

design phase or during maintenance. With the corrosion control

methods we have today, which include cathodic and anodic pro-

tection, numerous coating and lining formulations and systems,

chemical treatment, and materials selection and design, we can

tailor a program to best control corrosion in specific environments.

It is not always easy, but it can be done.

During the last decade or so, we have seen a big push in new

research and development to address older systems as well as

smaller-diameter pipelines. There have been improvements in

coating formulations and systems for internal and external use,

better inhibitors for protecting against such problems as microbio-

logically influenced corrosion and sulfate-reducing bacteria, and

breakthroughs in materials, including plastics and other nonme-

tallic composites. In addition, there are a wide variety of effective

inspection and monitoring techniques available, including close

interval surveys, direct current voltage gradient and alternating

current voltage gradient surveys, alternating current attenuation

surveys, soil resistivity surveys, ultrasonic testing, and smart pig-

ging, all of which help provide an accurate indicator of a pipeline’s

condition.

Integrated risk assess-

ment and integrity management

programs have also emerged to help tackle some of the key challenges.

The emphasis on pipeline integrity has increased signifi cantly in

recent years, largely in response to several high-profi le, catastrophic

failures that were caused by corrosion. Stricter regulations, liability

and safety issues, and increased emphasis on protecting the environ-

ment are bringing corrosion control considerations to the forefront

of pipeline protection programs. The continuing development of

pipeline integrity technology brings regular improvement to pipe-

line integrity and safety. The accuracy with which the inspections

can pinpoint areas of concern or of apparently good pipe continues

to improve as well. This has enhanced safety as problem areas can

now be accurately located and remedial action taken as required. In

my opinion, one of our biggest opportunities is to optimize the use of

existing tools and technologies through the use of risk and decision

analysis principles.

EducationNACE was founded by 11 pipeline corrosion experts back in 1943,

and although the association has since branched out to cover all

areas of the corrosion industry, pipeline corrosion remains at our

core. Our most signifi cant contribution to this industry, and the cor-

rosion industry as a whole, is our corrosion education, training and

certifi cation programs. There has been unprecedented growth in

these programs over the last several years, especially internationally,

as countries and governments everywhere recognize the importance

and value of a trained corrosion workforce. NACE offers numerous

pipeline-related courses, including four levels of cathodic protection

training, a course on using coatings with cathodic protection, the

world-renowned Coating Inspector Program, assessment training,

operator qualifi cation, and many others.

NACE is also the leading standards organization for corrosion

control, offering more than 200 standards developed by industry ex-

perts, approximately half of which relate to the oil and gas industry.

NACE holds corrosion conferences and seminars worldwide, pub-

lishes and disseminates journals, books and reports; has a strong

public affairs presence; and offers many other corrosion resources

from our website.

NACE exceeded 20,000 members for the fi rst time in its history

this year, with most of the growth occurring outside of the US and

Canada. Although the prominent types of industries, environments

and regulatory requirements may differ from country to country and

even city to city, one thing is clear – we all recognize that controlling

corrosion will reduce costs in any economy while protecting public

safety and the world around us.

Unprotected pipelines, whether buried in the ground, exposed to the

atmosphere or submerged in water, are susceptible to corrosion.

Without proper maintenance, every pipeline system will eventually

deteriorate. Corrosion can weaken the structural integrity of a pipeline

and make it an unsafe vehicle for transporting potentially hazardous

materials. However, technology exists to extend pipeline structural life

indefi nitely if applied correctly and maintained consistently.

Coating and linings: are often applied in conjunction with cathodic

protection systems to provide the most cost-effective protection.

Cathodic protection: uses direct electrical current to counteract the

normal external corrosion of a metal pipeline.

Materials selection: a selection of corrosion-resistant materials, such

as stainless steel, plastics and special alloys.

Corrosion inhibitors: extend the life of pipelines, prevent system shut-

downs and failures, avoiding contamination.

CORROSION CONTROL

Source: NACE International

HerbertNace.indd 75 9/12/08 15:12:46

76 www.ngoilgas.com

How are new technology and techniques

providing opportunity for more efficient

detection and risk-management activities to

ensure the integrity of pipelines?

Bjørn Jalving. Large variations in pipelines,

water depths and environments make pipe-

line integrity management a complex area.

Solutions for pipeline integrity monitoring

include measurement of flow parameters

with associated simulation and expert sys-

tems, inside inspection tools, sensors on the

pipeline and external inspection tools.

The two main methods for outside inspec-

tion of pipelines are towfish equipped with

side scan sonars (acoustic inspection) and

remotely operated vehicles (ROV) equipped

with cameras (visual inspection). The main

objectives for external pipeline inspection

is to determine position, estimate changes

in stress due to bends, determine change

in protective covering due to water action,

detect damage due to human action, for

example, trawling, and detect leakage at an

early stage.

With the exception of inspection of

buried pipelines, use of ROV and towfish are

proven techniques. Rather than replacing es-

tablished methods, autonomous underwater

vehicles (AUV) can complement the pipeline

inspection toolbox. AUVs provide a stable

sensor platform with high data quality.

Compared to ROV, an AUV surveys at higher

speed and comes with a relatively small

footprint that does not require a dedicated

support vessel. In a dual AUV-ROV opera-

tion, one can foresee the AUV autonomously

tracking the pipeline identifying critical

areas for closer inspection with the ROV.

High-quality visual camera solutions

with low-power LED lighting are available

for AUVs. Prospects of applying synthetic

aperture sonars and bottom penetrating

sonars to pipeline inspection are promising.

AUVs can also be equipped with sensors for

leakage detection, and pollution and envi-

ronmental surveillance.

In shallow and coastal waters, smaller

AUVs will make a contribution due to easy

handling. In deeper and more remote areas,

larger AUVs with more capable sensors and

longer endurance are required as a key point

is to ensure cost efficient operation of the

complete system.

What influence have increasing regulatory,

public and environmental pressures had on

the way pipelines are managed? Why is this

an increasing concern for operators?

BJ. The plans for moving oil and gas into

new areas, for instance the arctic and areas

important to marine life and fishery, meet

resistance. For oil companies and pipeline

owners looking to pursue oil and gas ex-

ploration in these vulnerable areas, it will

be important to keep a clean track record.

It will be difficult for the political decision

makers to allow oil companies into these

vulnerable areas if the general public does

not trust them.

What recommendations would you make to

companies looking to improve their pipeline

integrity management programs, and where

does your company fit into the picture?

BJ. AUVs can help pipeline owners perform

more efficient pipeline inspections at re-

duced cost. Also interesting is the prospect of

AUVs providing new and higher quality data

products. Kongsberg Maritime will sell AUV

products to inspection service providers that

run contracts towards pipeline operators.

How do you see this sector developing over

the next five to 10 years?

BJ. There will be an increasing interest in au-

tomated technology for inspection of subsea

installations and pipelines, as oil production

moves into deeper water. Many oil companies

are investing heavily in deepwater technol-

ogy. At the same time they are looking at how

the inspection budgets for the deepwater

fields can be reduced, while ensuring the

same level of security.

An interesting prospect is deployment

of AUVs either on floating production units

or in docking stations in subsea production

fields. Benefits will be an always present and

ready inspection capability, allowing for both

planned inspections and rapid inspections

in case of emergencies. In remote areas and

under ice, mobilization time and cost will be

greatly reduced.n

EXECUTIVE INTERVIEW

Improving pipeline infrastructureA modern and efficient oil and gas infrastructure will be critical in meeting rising demand for product. Bjørn Jalving, VP of Kongsberg Maritime’s AUV department, explains the important role of pipeline integrity in improving infrastructure.

“There will be an increasing interest

in automated technology for

inspection of subsea installations and pipelines, as oil

production moves into deeper water”

Kongsberg.indd 76 9/12/08 16:20:44

Kongsberg.indd 77 9/12/08 10:58:23

78 www.ngoilgas.com

Earlier this year, BP and ConocoPhillips, two of the major

Alaska North Slope energy producers, launched a new pipe-

line project, called Denali – The Alaska Gas Pipeline LLC. This

new pipeline will run approximately 2000 miles, depending

on its terminus, from Alaska’s North Slope to Alberta, Canada. The

gas will move to Lower-48 markets from Alberta, through existing

pipe infrastructure, or if required, through a new pipeline that Denali

will construct. “This is a truly, ‘basin-opening project’,” enthuses Bud

Fackrell, President of Denali. “It will allow, for the first time, Alaska’s

North Slope gas to reach the hungry North American marketplace. A

successful project will encourage new exploration and development,

and will provide a major new domestic source of clean energy for de-

cades to come.”

The project is expected to deliver approximately four billion cubic

feet of natural gas, per day, to market and there is an opportunity to

expand this through additional compression. If the project goes to plan

and sticks to the itinerary then gas will be flowing to market in 2018.

“This project has the capacity to provide decades of reliable, clean

and secure energy to consumers in the Lower–48 states, Alaska and

Canada,” says Fackrell.

ChallengesThere will be a number of technical challenges involved in the

construction of the Denali pipeline, mostly due to the difficult terrain

and freezing temperatures. Numerous river and stream crossings, as

well as several mountain passes – including Atigun Pass in the Brooks

range at 4800 feet – will add the mountains of challenges.

The pipeline will be buried in permafrost and discontinuous per-

mafrost in the northern sections, and in order to ensure that the sur-

rounding soils remain frozen, propane chillers will be used to cool the

gas to around 30 degrees Fahrenheit.

As planning for the pipeline continues, Fackrell has the oppor-

tunity to make the most of the latest developments in pipeline con-

struction thinking. He is currently evaluating the prospects of using

high-strength steel, which would reduce the overall weight and cost of

pipeline steel. “We expect to use large, powerful trenching machines

to help optimize the construction effort, and plan to employ automated

Connecting the north slopes of Alaska to Alberta in Canada is going to require cutting-edge technology and a big budget. Denali – The Alaska Gas Pipeline will be the largest private construction project in North America with an estimated cost of around $30 billion. O&G catches up with the project’s president, Bud Fackrell, to find out more.

welding technology to help increase construction efficiency and lower

overall project costs,” explains Fackrell.

The design and operational plan for the pipeline will include a

number of features to address operations, particularly pipeline moni-

toring, leak detection, safety and security. Specifically, Fackrell cites

leak detection tools being built into the computer controls that will be

used by control room operators to manage the pipeline system, as well

as advanced inline inspection tools that will regularly inspect the line.

Intermediate block valves will isolate sections of the line. “The outside

of the pipe will be coated with a fusion-bonded epoxy resin to resist

corrosion,” says Fackrell. “Further corrosion protection to appropriate

sections of the pipeline will be provided by cathodic protection – the

application of a carefully controlled electrical current to prevent elec-

trolysis that can cause external corrosion.”

The first stepsThere is a huge amount of work involved before any building

can get started, in fact, in the ‘success case’, the construction of the

Denali pipeline won’t begin until 2013, and the first gas won’t be seen

OppOrTuniTy

In addition to helping meet critical energy needs, this

multi-billion dollar project will:

• Serve as the economic engine to create jobs and new

business opportunities for Alaskans and Canadians

• Generate billions of dollars of new gas sales, royalties

and taxes

• Make it possible for Alaskan and Canadian consumers

to obtain North Slope natural gas supplies from off-

take points on the main pipeline

• Promote new oil and gas exploration and production on

Alaska’s North Slope and along the pipeline corridor in

Alaska and Canada

• Help extend the life of North Slope fields

PiPE dreams

PROJECT WATCH

Bud Fackrell.indd 78 9/12/08 15:11:53

79 www.ngoilgas.com

until 2018. There are four phases involved. The fi rst three will take

until 2013, and involve planning, application preparation and permit

approvals. And phase four will be the execution, from 2013 to 2018.

The Denali project will also involve the construction of a gas

treatment plant on the North Slope. This gas treatment plant will be

a mega project in its own right, and will be the largest plant of its

kind in the world, requiring world-class project execution skills. The

plant will remove CO2 and other impurities

before dehydrating, compressing and chilling

the gas before it goes on its way down the

pipeline to Alberta.

The fi rst major milestone is open season

in 2010. The key to a successful open season

is having a quality cost estimate and con-

struction schedule that shippers can rely

upon. “The last cost estimate that was done

for this project was in 2002,” explains Fack-

rell. “Over the next 18 months, we intend to

update the cost estimate and develop a tariff

structure. As part of this effort, we will be

collecting fi eld data in critical areas of the

pipeline corridor and awarding preliminary

engineering contracts for the gas treatment

plant and the pipeline.”

impactThe Denali pipeline will undoubtedly have an impact, both envi-

ronmentally and socially. The question is, just how much of an impact

will it have? Fackrell explains that steps are being taken to manage

the pipeline’s impact, and that the Federal Energy Regulatory Com-

mission and the National Energy Board will oversee a rigorous stake-

holder engagement process to address these areas. “Denali will be

holding a series of stakeholder engagement

meetings along the pipeline corridor, and

will be developing an Environmental Impact

Statement to ensure issues are identifi ed

and addressed appropriately. If these issues

are not addressed adequately in the plan-

ning stage, the pipeline construction could

be signifi cantly delayed,” warns Fackrell.

Without doubt the Denali pipeline has

the potential to become an economic engine

for development. Fackrell anticipates, and

welcomes, effi cient pipeline expansion op-

portunities, encouraging new exploration

and development on Alaska’s North Slope

and along the pipeline corridor in Alaska

and Canada, extending the life of North

Slope fi elds.

prOJECT in nuMBErS

• The pipeline will be 2000 miles

• It operate at around 2500 psi

• 2-3 million tons of steel will be used

• $60 million spent in 2008 alone

• The gas will move to the Lower 48 markets

Bud Fackrell

Bud Fackrell.indd 79 9/12/08 15:11:57

80

“The cost of corrosion to the US alone is

estimated at one to five percent of GNP. Additionally, people

sometimes forget that corrosion often causes serious environmental

problems, such as spills”

www.ngoilgas.com

since the mid 1980s, so it is surprising to see

that, by some estimates, as many as half of

the pipelines worldwide continue to use cor-

rosion coatings with solid plastic fi lm back-

ings. Cathodic shielding is a problem for the

pipeline operators, and an opportunity for

Polyguard, since we have developed corro-

sion coatings that do not block the protective

And there other unsolved problems?

From looking at your website, Polyguard

Products appears to be heavily focused on

corrosion.

John Muncaster. We certainly are. The cost of

corrosion to the US alone is estimated at one

to fi ve percent of GNP. Additionally, people

sometimes forget that corrosion often causes

serious environmental problems, such as

spills. Within the set of corrosion opportuni-

ties, Polyguard has developed a number of

products that address unsolved corrosion

problems.

Can you explain the main unsolved corrosion

problems facing the industry today?

JM. A major problem is corrosion on buried

oil and gas transmission pipelines. Cathodic

protection systems (CP systems) have been

developed to act as backup protection to the

pipeline corrosion coating system; if the cor-

rosion coating, which is the primary protec-

tion, fails, the CP system delivers electrical

current to the steel pipeline surface, which

can effectively stop the corrosion process.

CP systems have been accepted world-

wide. However there are many pipeline op-

erators whose cathodic protection systems

are being rendered ineffective, because they

have installed corrosion coatings with a solid

plastic fi lm backing on the pipeline. Solid

plastic fi lm backings have the property of

high electrical resistivity, which means that

solid plastic fi lm backings block the passage

of protective electrical current from the CP

system to the steel pipeline surface.

The phenomenon that takes place when

protective CP currents are blocked by the

backings of corrosion coatings is called ca-

thodic shielding. Dozens of technical papers

have been published on cathodic shielding

JM. A second unsolved problem is hidden

corrosion, examples of which are corro-

sion under insulation and corrosion inside

fl anges. Polyguard has a heavily patented gel

product which, when applied to steel surfac-

es, reacts with elements in the steel to form

an extremely thin glasslike mineral layer.

This gel product is under test on the Alaskan

pipeline, and is rapidly becoming standard in

the food and beverage processing industry,

where corrosion under insulation has been a

huge problem.

Finally, a third unsolved corrosion prob-

lem is crevice corrosion. This is corrosion in

tiny gaps, which are not subject to fl ushing

by whatever fl uid rinses off the major portion

of the surface area. Because contaminants

can become concentrated in crevices, crev-

ices can develop a whole different chemistry

from the rest of the surface. A good example

of crevice corrosion is inside steel cables or

wire ropes. Polyguard has modifi ed gels that

solve crevice corrosion problems.

How long have the modifi ed gels been

around for?

JM. Early versions were formulated for

the US Navy. In the 1990s the Navy identi-

fi ed several corrosion problems that they

deemed ‘mission critical’. One of Poly-

guard’s gel formulations, using a custom-

ized locking mechanism, solved the Navy’s

door locking mechanism corrosion problem.

A second formulation solved the problem of

corrosion of exterior steel elevator cables.

These gels have been used by the Navy for

the past 10 years for these mission critical

problems, as well as some other corrosion

problems.

EXECUTIVE INTERVIEW

With overheads soaring and related problems multiplying, it is time to face facts: corrosion costs. John Muncaster, CEO of Polyguard Products, explains why modifi ed gels could help.

With overheads soaring and related problems multiplying, it is time to face facts:

THE COST OF CORROSION

Polyguard.indd 80 9/12/08 15:14:31

Polyguard.indd 81 9/12/08 10:58:52

enough resources to meet that demand. At the end of 2007, total remain-

ing proved oil reserves stood at around 2.3 trillion barrels of oil equivalent.

At today’s consumption rates, we believe we have around 40 years of

proven oil reserves, 60 years of natural gas and 130 years of coal.

And let us not forget that enhanced capability would improve that re-

source-to-production ratio further. For instance, the worldwide average re-

covery factor for conventional oil reservoirs is around 35 percent of oil in

place. If, as an industry, we can raise that by just five percent, it would add

around 170 billion barrels to world reserves – enough for five years supply.

The task facing the industry is to ensure supply rises adequately to

meet demand by bringing this oil and gas endowment to market. These re-

82 www.ngoilgas.com

EXECUTIVE PERSPECTIVE

50%Expected increasein world energydemand by 2030

IN OUR INDUSTRY, STRATEGIC CHALLENGES COME AND GO AND WE

USUALLY CONQUER THEM IN THE END. That is what we do: we man-

age risks, whether they be technical, geological, commercial or politi-

cal. And today, near the top of that list is capability.

The really big strategic issue for all oil and gas companies is matching

the earth’s resource endowment on the one hand, with the capability –

technology, skills and know-how – required to bring those resources to mar-

ket on the other. The days of ‘easy oil’ are well behind us. For international

oil companies, and increasingly national oil companies too, new resources

are harder to reach and tougher to produce. Resources are now found in

reservoirs that lie at greater water depths, at higher temperatures and pres-

sures and require complex drilling and completion designs. Bringing them

into production is going to be difficult. It will require that capability gap to

be filled.

The global contextRecent developments in financial and commodity markets are just the

latest reminder that we are definitely living in interesting and changing

times. In the current chaos, it is easy to focus on the short term, but I want

to maintain a longer-term perspective. Despite recent falls, the oil price re-

mains high and volatile by historical standards, and prices are not being

driven by a lack of resource because there is plenty of oil and gas around.

In fact, prices are being driven by a confluence of factors. The first of these

is the recent period of exceptional worldwide economic growth. Although

the short-term outlook for worldwide economic growth is evidently deteri-

orating, the fundamental drivers of long-term growth in demand for ener-

gy remain in place.

We have entered a new phase in global industrialization, led by China

and India. When Europe industrialized, it involved 50-100 million people

moving from a rural to an urban way of life. The US industrialization in-

volved 150-200 million people. And those changes took centuries. But in

the next decade, in China and India alone, over one billion people will be

moving from a rural to an urban way of life. This will result in a dramatic in-

crease in energy consumption to provide light, heat and mobility.

According to the IEA, by 2030, world energy demand will be 50 percent

higher than today and non-OECD countries are expected to contribute 85

percent of the total world energy demand growth between 2005 and 2030.

Contrary to what you may hear from some quarters, there are more than

“Our industry needsthe smartest engineersand geoscientists.Increased computingpower and bettertechnology will alsomake a hugecontribution, but theyare not a magic bullet”

The retirement of the babyboomergeneration is only part of a farbigger challenge beingexperienced by the industry: thatof plugging the capability gap.Andy Inglis, CEO of BPExploration & Production, outlineshow to manage the talent crunch.

ANDY INGLIS:dec08 09/12/2008 15:52 Page 82

sources are found in increasingly challenging environments – in the deserts

of the Middle East and North Africa; in the deepest waters of the Gulf of

Mexico, West Africa and Brazil; and in the Alaskan and Russian Arctic.

Furthermore, many of these resources are controlled by NOCs that do not

always have the same capability at their disposal as IOCs.

Our industry needs the smartest engineers and geoscientists.

Increased computing power and better technology will also make a huge

contribution, but they are not a magic bullet. State-of-the-art software pro-

grams and seabed monitors are fantastic – but I’m not expecting them to

walk into my office with a solution to the problem. Technology is only as

good as the people who design and operate it. With capability, it is people

who make the difference. Turning these resources into reserves and then

production is going to require leadership, ingenuity and innovation as well

as technology. That is the capability challenge.

The capability challengeThe first point to consider is the demographic pressures of our indus-

try. Looking specifically at averages, the average employee working for a

major operator or service company is 46-49 years old. However, this is a

problem we have been aware of for several years and which we have been

addressing. The good news is that we see an increase in the 20-34 year old

bracket – reflecting more intensive recruiting in the last 10 years. The fall

83www.ngoilgas.com

changingThe

guardof the


also perceived as low-tech and out of date when set against other high-tech

areas such as IT, media and pharmaceuticals. Nothing could be further from

the truth. Historically, this was also a very white and very male industry so

it has been perceived as lacking in diversity. As an industry we must address

and correct these unhelpful and old-fashioned misconceptions, so that we

can be competitive with the other opportunities graduates have in con-

sulting, pharmaceuticals and the media.

Attracting and retaining talentFirst we need to retain the talent of our experienced employees. People

are working later in life today – certainly later than the traditional industry

retirement age of 55 – but this cadre of employees also demands more flex-

ibility. At BP we have a scheme in place to access the skills of our retired

staff for specific challenges and projects of interest to them. We offer flexi-

hours and part-time working to encourage individuals to work beyond the

in the percentage of 35-49 year olds reflects a lack of recruiting during the

years of lower prices, when the industry saw the main strategic challenge

to be increasing efficiency through consolidation and mergers as opposed

to building organizational capability.

I’m approaching 50 myself, so I am in that age group. And in some

ways my own experiences are typical. I joined BP in 1980, and in 1990 was

told that Mechanical Engineering was not considered core to BP’s strate-

gy, that we would follow a track of outsourcing and use of the contracting

industry. This caused me to broaden into other disciplines and areas. I’m

happy to be now back in the core of E&P. I have kept my technical roots,

I’m a chartered engineer, very proud of it, and very passionate about en-

suring we do not repeat the mistakes of 20 years ago.

The second point is that despite our best efforts, we have to admit that

we are not attracting enough graduates from traditional recruiting areas

such as the US and Europe. Even when people enroll on engineering de-

gree courses intending to join the engineering ranks, this does not mean

they will follow through. One recent study found that of the 90 percent of

students who originally aspire to work in the sector when they began their

degrees, only 65 percent actually do so.

The overall impact of these pressures has been estimated by CERA as

a potential 10-15 percent ‘people deficit’ by 2010, compared with the esti-

mated number of staff needed to deliver projects. This is being felt across

the industry – in oil and service companies alike. The issue is leading to pro-

ject delays or deferral. Goldman Sachs’s study of the top industry projects

shows that more than 40 percent have experienced a delay of a year or

more.

I believe the oil and gas industry is suffering from a number of what I

would regard as misconceptions. Some of these misconceptions were true,

but are now outdated. The industry suffered a boom and bust in the 1980s

and early 1990s that left many with an impression of instability and a sense

that there was no prospect here of a ‘career for life’. My earlier story re-

garding the outsourcing of engineering is evidence of that. The industry is

84 www.ngoilgas.com

In Azerbaijan, development of localtalent has been achieved through a number ofBP initiatives:

Special entrance and development programs for

graduate recruits: This is through the Challenge program;

50 Azeri graduates completed the program last year

The Caspian Technical Training Centre: A $12 million

world-class training centre dedicated to training

technicians to work in BP’s Caspian operations – to date

it has trained over 1000 technicians, with a steady state

now of 100 per year

Professional development of national staff: In 2007,

more than 100 employees were supported by BP in their

professional education, whether attaining chartership

accreditation, or advanced degrees at UK and US

universities

Overseas assignment in other BP operations: Where

Azeri staff can learn best practices from other operations to

bring back to Azerbaijan

STAFF DEVELOPMENT IN ACTION


PureTechno.indd 85 9/12/08 10:59:11

to correct misapprehensions and ensure the full attractions of a career in

energy are made clear. We do that through partnerships with major acad-

emic institutions, but also by raising our profile on campus. To be honest, I

think we have more work to do here.

A diverse workforceSecondly, we need to correct some of those outdated misconcep-

tions by continuing to diversify our workforce and celebrating that

process. After all, that is simply a reflection of globalization in action. By

2020, over 50 percent of BP’s operated production will come from non-

OECD countries, giving us much more geographical breadth and depth

than in the past.

Many governments want to see greater local participation in the de-

velopment of their country’s resources and we fully support their aims. Over

statutory retirement age. We have to be accommodating

to continue to access this talent.

Then, looking at the other end of the age spectrum,

we also need to be sensitive to the aspirations of people

in their mid-20s – often described as Generation Y. From

our own interviews with new graduate entrants, we know

that their top motivations are quite distinctive and in many

ways different from past generations. For example, there

is much less emphasis on having a job for life and much

more on the quality of experiences and the chance to make a difference.

To attract and retain the top graduate talent, BP offers a development

program called the Challenge Program. This began in 1993 with 30 people

from the UK and US. Today the program has graduated over 3200 people

and we currently have 1200 Challengers from all over the world in the pro-

gram. Challenge is about building deep petrotechnical skills through a com-

bination of on-the-job work experience, dedicated mentoring from

experienced employees, clearly defined training and course curriculum,

and field and operational experience. Graduation and intermediate reviews

are based on competency assessment. This creates self-standing individ-

uals, carefully placed into the right next roles with access to further learn-

ing offerings such as accelerated development programs.

We also need to get closer to talented students, earlier, as they make

their way through university. That’s the time at which we need to be there

86 www.ngoilgas.com

ANALYZING REAL-TIME DATAThe Advanced Collaborative Environment (ACE)

is a high-tech environment where drilling,

reservoir, facility and petroleum engineers can sit

together and collectively analyze the data to

maximize operating performance. An example of

this in operation is a recent situation on BP’s

Atlantis platform in the Gulf of Mexico, as Andy

Inglis explains.

“A control responsible for the start-up of

automated equipment failed, resulting in the

shut-down of instrument air systems and gas

compressors. Onshore and offshore personnel

working through the ACE were able to

assemble a team of engineers and automation

specialists and troubleshoot the issue. Within

30 minutes, engineers onshore were able to

lead the automation team offshore through the

reset process and bring the failed system back

online. If another 10 minutes had passed

without functioning water or air cooling

systems, the team would have been forced to

shut down production. The savings through

lost production avoided was nearly $3 million.

Today in BP, more than 35 of our assets now

have ACEs. Cost savings run to the tens of

millions of dollars – through reducing engineer

and vendor trips offshore, as well as reducing

non-productive time.”


the last decade or so our operations have grown rapidly in countries

such as Angola, Colombia, Egypt and Trinidad. In all of these countries

and many others, we have made an early priority of developing local

leaders as well as local frontline workers. We adopted an approach of

developing local talent, using the global capabilities of the firm.

Let’s look at the example of Azerbaijan. BP has been in Azerbaijan

since 1992 and is the largest foreign investor in the country. We oper-

ate more than one million barrels of oil a day equivalent in Azerbaijan

from two giant fields in the Caspian Sea – ACG, an oilfield, and Shah

Deniz, a gas-field. We also had a leading role in the construction of the

BTC pipeline that takes oil from the Caspian to the Mediterranean. In

total, an investment of $28 billion by BP and our partners.

At $100/bbl, this production is projected to generate more than $25

billion of revenue for Azerbaijan during 2008. But we also want to gen-

erate human capital for the region by accessing and developing local

talent and using local suppliers. Over the last 15 years, we have built

up a workforce of 2700 BP staff and 1100 contractors and we have made

a priority of employing and developing local talent. Today 83 percent

of that workforce is Azeri, and we are aiming to reach 90 percent by the

end of the decade. What we are creating in Azerbaijan is a replica of

what occurred in Colombia over the last two decades. Today in

Colombia, more than 95 percent of the staff are locals, including all se-

nior management positions.

Improved efficiency through technologyThirdly, let me move to technology as a means to plug the capability

gap. Technology improves productivity by enabling us to perform tasks

faster and with greater effectiveness and efficiency.

Let’s start with the basics in my own business. Historically our pro-

duction engineers have spent up to 40 percent of their time looking for

data. A quick win for us was to create a web-based information manage-

ment system that allows our PEs to quickly access the data they need to

do their jobs. Piloted in Alaska and now available across our operations,

this tool has allowed us to reduce the amount of time spent on access-

ing data to less than 10 percent of the time, releasing our PEs to spend

more time managing our wellstock and operations, increasing their

‘wrench time’.

Go back not too many years and our reservoir engineers would spend

a week doing one history match; it may have taken six months to run 25

cases to find the one deterministic answer that matched. Now, with im-

proved workflows and computing power, we can do well over 1000 history

matches a week, a huge step change in efficiency, and importantly allow-

ing multiple solutions to be found – which in turn has greatly improved our

understanding of risk and uncertainty.

87www.ngoilgas.com

International oil companies have a unique roleto play in addressing the energy challenges ofthe 21st century.

1. IOCs shape the oil and gas markets and make them work. They

are global multilateral energy vehicles. They form the bridge between

producing and consuming nations. They are involved in the energy

policy dialogue with all of the key resource holding governments and

consuming nations

2. They lead the efficient resource development of oil and gas,

working on the frontier of the energy industry

3. Only the IOCs – and one or two national oil companies, such as

Saudi Aramco, Petrobras, Gazprom – have the skills, technology,

know-how and balance sheets to effectively execute multiple

complex and risky projects simultaneously, and apply the learning

from them globally to drive efficiency

4. In terms of logistics, IOCs are the largest movers of hydrocarbons

and most efficient managers of fuel infrastructure

5. They are pioneering investors into alternative energy solutions and

energy efficiency

6. They also have strong diversified global asset bases not overly

exposed to any single geopolitical risk

THE ROLE OF IOCs

BP operate all over the world,including the North Sea off the

coast of Aberdeen, Scotland.


opportunity at every stage of a career. To deliver this strategy we have cho-

sen to partner with the best educational institutions in the world. We all

benefit from these partnerships. BP gets to teach the ‘BP Way’, in partner-

ship with world-class educators. Our staff get the chance to develop as in-

dividuals. And I hope our academic partners benefit too.

We have built an impressive consortium aimed at building our capa-

bility by advancing our technical learning and development, involving five

universities – Rice University, Baylor

College of Medicine, Imperial College

London, Herriott Watt in Aberdeen and

the University of Manchester – each of

which has its own distinctive area of

expertise. Capability and managing tal-

ent have to be at the core of strategy

for every company in our industry right

now, and at the front of the delibera-

tions for all boards. Sure, the guard is

changing and that creates a major challenge for us. But it has to be seen

as part of a far bigger picture. Our industry brings energy to markets from

some of the most difficult places in the world. We are used to challenges.

In fact we relish them. And we are managing the changing of the guard

by seeing it as part of a bigger strategic challenge: plugging the capabil-

ity gap.

At BP we are addressing this challenge in four ways: Attracting and re-

taining talent; developing a diverse workforce; leveraging technology to

increase the efficiency of our organization; and offering a powerful learn-

ing culture, notably through partnerships with some of the world’s lead-

ing academic institutions. There is always more to do, but we know that

building organizational capability goes right to the heart of our competi-

tive advantage. n

Remote monitoring is another technique that enables us to achieve

better performance with less labor-intensive processes. For instance, we

are using remote monitoring on a number of our turbines in the Gulf of

Mexico. Our vendor, who is located in California, monitors the operations

24 hours a day. Through remote monitoring, we have been able to increase

the intervals between service shutdowns and push the operational limits

of the machines. Benefits include real-time troubleshooting of the equip-

ment by internal and external subject matter ex-

perts from around the world; production loss

avoidance due to sustained equipment uptime;

and deferred costs by extending the equipment

lifetime through increased monitoring.

In the past, one individual was able to moni-

tor 40 engines. Today that person can monitor

4000 – a 100-fold increase – because the system

works by exception, flagging up potential prob-

lems, rather than by constant surveillance of all

the equipment. As an industry we are beginning to understand the full po-

tential of predictive analysis as the next evolution of this technology.

Anticipating events and hazards ahead of time, creating intelligent software

to advise of, and in some cases make, corrective actions and adjustments.

These are early days for many of these technologies and we are learn-

ing more all the time, finding ways to increase further the productivity of

our scarce human capability.

Learning partnershipsThe fourth part of our strategy is to underpin the development of our

staff with a world-class learning offer for all levels and ages of our organi-

zation. I talked earlier about one aspect of this, our Challenge entry pro-

gram for graduates, and our goal is to provide the same learning

88 www.ngoilgas.com

“The really big strategicissue for all oil and gascompanies is matchingthe earth’s resourceendowment on the onehand, with the capability –technology, skills andknow-how – required tobring those resources tomarket on the other”

2.3 trillionRemaining proved oilreserves at end of 2007(barrels of oil equivalent)


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90 www.ngoilgas.com90 www.ngoilgas.com

the faculty in terms of projects, technology

and development partnerships. In order to

succeed in his mission, Puducheri is building

relationships with universities. “By building

more strategic education partnerships and

working with key universities we are identi-

fying the long-term talent pipeline.”

Eighteen months ago, Puducheri began

targeting the key go-to markets, and chose

specifi c universities in each of those coun-

tries, narrowing the list from 17 to six major

countries that he was keen to focus on.

“We are constantly in contact with these

universities, helping them put together a

curriculum architecture, so that the stu-

dents have an expectation of the oil and gas

services industry, and are well prepared to

take on jobs within the energy industry,” he

says. “We have a series of metrics that we

work with on those schools, so we provide

scholarships, or some of the faculty awards,

which all comes into play, when you think

about building a long-term pipeline of engi-

neering talent.”

For Mahesh Puducheri, Senior

Director for Talent at Halliburton,

changing industry perception is

fundamental in addressing the

skills shortage in the oil and gas

industry. He believes that in order to attract

young talent to the industry it is crucial that

the industry is perceived as the important,

innovative and interesting workplace that it

is. Puducheri believes that students are infl u-

enced by their university and therefore their

faculty, and he has taken steps to work with

Attracting the top talentMahesh Puducheri, Senior Director for Talent at Halliburton, explains how he is building a long-term pipeline of engineering talent.

90 www.ngoilgas.com

HR FOCUS

NGO&G_Mahesh Puducheri 90 9/12/08 16:41:44

91 www.ngoilgas.com

remain around the skills shortage still seen

in the oil and gas industry. Puducheri be-

lieves that universities are now stepping up

to offer more courses at various levels; for

example, some universities are discussing

the possibility of a petroleum engineering

undergraduate degree where they never had

one before. “Universities have a key aspect

to play in terms of long-term thinking,” he

says. “They need to invest in the long-term.

We are working with several universities to

help them understand this and providing

support to help them achieve it.”

Over the next fi ve years, the gap be-

tween new graduates and experts leaving

the industry is estimated at almost 500,000.

Puducheri believes that it is vital that ev-

erything possible is done to close that gap.

However, there is not just one silver bullet

that can solve this potentially major problem.

Firstly, Puducheri believes that companies

should be investing in K to 12 education. He

says that changing the mindset of potential

employees to think of oil and gas as a clean

and environmentally friendly industry is key.

“Knowledge transfer will also be a key

issue that will help close the gap,” believes

Puducheri. “Formal mentoring programs

haven’t worked in the past, but perhaps

encouraging informal mentoring programs,

would work? I know there are some compa-

nies out there trying to tap into the retired

population to create a network and people

might want to remain engaged with the in-

dustry. As an industry we have to start think-

ing about the options we have on hand.”

Puducheri says that the knowledge

management systems currently employed at

Halliburton are “pretty good”; particularly

in the way that knowledge is exchanged and

transferred. He is currently working with

companies who have already engaged in the

retired network and is trying to fi nd out the

people who would be interested in coming

back to work for Halliburton on a part-time,

mentoring basis, or on a contract basis in

the training and learning centers.

He does say however, that Halliburton is

already extremely involved in the K through

12 grades, and is focusing on making people

available in the energy industry itself. “We

have programs organized around bringing

students into our campuses and providing

them with input in terms of our oil and gas

services lifecycle – we help them observe

some of the jobs going on and give them

some idea about how this industry is going

to be when it comes to the reality in terms

of getting exposed to elements and working

with technology,” says Puducheri.

Talent pipelineThe knock-on effect of a shortage of

skilled and qualifi ed engineers can affect

business in a big way. “If you think long-

term,” says Puducheri, “the effects are

going to be heavy – business is going to

become harder and it will be much more

diffi cult to fi nd oil.” Puducheri sees some

companies, who don’t have the right people

in place, investing in technology and other

Puducheri believes that many students

lack knowledge and exposure to the oil and

gas industry, and perceive the industry as

a low-tech, manual job. “It is changing,”

says Puducheri, “thanks to the media and

increased information about the industry.

And we are working with companies, who are

involved in perception surveys on campus,

to talk about the current technology that the

students who’ll be coming for work for us will

train in when they leave college.”

Puducheri is also keen to work on Hal-

liburton’s college recruiting brand, ‘Go

Further, Faster’. He wants the brand to

defi ne the engineering department and the

graduates that he plans to hire from the vari-

ous campuses. “We felt we should be in the

campus, before we show up to hire them, and

that means we have to invest in understand-

ing the perceptions and preferences of the

college students, whether they are in their

fi rst year or last year,” he explains.

Puducheri believes that it will take

time for perceptions around the industry to

change, but every effort is being made to

convince students that they will be working

with the very latest high-tech technology.

He goes on to explain that he is also working

to expose students to a more collaborative

learning environment, as well as understand

the needs of this new generation of students.

“We are mapping their needs in terms of

what we are doing in technology develop-

ment areas, as well as in development and

improvement areas so that it really matches

up to their needs,” says Puducheri. “Bar-

riers are being broken. People are recog-

nizing that they need to understand each

area’s input and that they are in the same

environment, making decisions together

as a team.”

Mind the gapWhile Puducheri has seen a huge amount

of growth in students entering the industry

since 2006 and 2007, many challenges

Work/life balanceFinding a work/life balance can be diffi cult, but Halliburton provides

numerous benefi ts and resources to help fi nd some balance:

Education: Educational reimbursements are related to job-related

workshops, off-site seminars and courses taken at accredited educational

institutions

Travel: With presence in around 70 countries there are many opportunities to

work on interesting projects, experience new cultures and see the world

Health: A wellness program promotes health and well-being through

customized solutions to help lose weight, quit smoking and get in better shape

“By bringing in more technology, the industry becomes more high-tech, therefore you need different types of people with different competencies and skills”

91 www.ngoilgas.com


92 www.ngoilgas.com

assets as an alternative, but believes it is not

going to solve the skills problem because it

is people who run the technology and are key

in bringing in their knowledge and expertise.

“By bringing in more technology, the indus-

try becomes more high-tech, therefore you

need different types of people with different

competencies and skills,” explains Puduch-

eri. “Companies can and should invest and

manage assets, but the biggest problem

would not be investing in people. The com-

pany that gets ahead of investing in people,

trying to attract, develop and retain the best

talent is going to be the key winner.”

Once you have secured the talent it is

vitally important that it is developed to its full

potential. In the past the oil and gas industry

has been slow to embrace the development

and retention aspects of recruitment, but

Puducheri sees this changing. “We’ve got

to be able to attract the best fit for the job

and we should be

able to continually

accelerate the de-

velopment of that

person,” he says.

“Today, our focus is

not just looking at

people in terms of

development. This

is a bottoms-up

approach that we use to identify key talent

within the company. We have a formal suc-

cess process, or talent review session, by

which we identify key talent that are crucial

to the success of this business, and who are

going to be our future leaders.”

Puducheri goes on to explain that talent

at Halliburton is identified through a process

of leadership competencies that are assessed

against each candidate. “We use a two-level

process to talk about strengths and weak-

nesses, development areas and potential

career moves. We do this in a very formal

way, drilling down the entire organization,”

explains Puducheri. “There’s a lot of commit-

ment from the top, which helps, and a lot of

focus on leadership development.”

After the talent has been identified,

Puducheri explains that communicating is

the second step to developing and retaining

talent. When the top talent has been identified

they progress through a number of programs,

including a one-year leadership development

course. These assessments and programs are

formalized all the way though to executive

development programs in order that people

are able to progress quickly through different

levels within the company.

“You can attract, you can accelerate the

development, but you’ve got to retain,” says

Puducheri. “The only way you can do that is

to focus on the development, focus on the key

talent, focus on the high potential and provide

them challenging opportunities. That could

be job rotation, working on different projects

or it could be an overseas assignment, for

example. There are different aspects to de-

velopment, not just training, that we focus on

formally around identifying our top talent and

focusing on development.”

Over the past few years, Puducheri has

made sure that the system in place signifies

that Halliburton’s retention processes are

working, and that it

communicates that

to both potential and

long-term employees.

“Whenever we have

key management

positions come up,

we go back to our

succession charts

and identify people

who could replace those positions. We want

to demonstrate that we are serious about

leadership and management development,”

states Puducheri.

Long-term thinkingGoing forward, Puducheri is keen to make

the systems side of processes more robust as

well as continue to invest the same amount

of senior management time and energy. He

wants to send a clear signal to people that

Halliburton takes the recruitment, develop-

ment and retention of talent seriously. “As

people come into supervisory roles we try to

train them around the importance of evaluat-

ing talent and understanding the difference

between performance and potential, so we

prepare them for frontline thinking,” explains

Puducheri. “The time we spend around people

and development processes and talking about

key talent in the company really pays off in the

long-term, and that’s very important.” n

“You can attract, you can accelerate the

development, but you’ve got to retain”

Challenging timesIn 2007, Halliburton hired

around 14,000 employees

globally. Hiring this amount of

people could have presented

some huge challenges, but

Puducheri had a clear plan from

the outset. “We knew we were

going to grow based on the

market and company indications.

From a system perspective we put

in a new system to help us identify

the requisitions that we have

across the global so that we were

better able to manage and monitor

our metrics. And from a process

perspective we invested more

resources” explains Puducheri.

“We had to think outside

of the box in terms of hiring

people. We needed to keep work

schedules flexible so we could

attract and then keep the new

employees. We have addressed

every aspect of it, whether

it’s going through our system,

working with vendors to actually

do a job posting or, getting the

mindshare on the campus and

identifying people and bringing

them into the places where we

have work. Our strategy from a

talent management perspective

is integrated and aligned to the

business operations. That is

how we make the business more

successful.”


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95www.ngoilgas.com

In recent years we have seen a dramatic change in the supply and

demand of suitably experienced and qualified personnel within

the oil and gas industry. An age gap has become apparent and

we are seeing a declining expatriate workforce in the industry. Mix

this with the increase in demand from the developing countries

such as China and India, and the associated increase in the price

of oil to what it was a few years ago, and we are facing a massive

shortfall in the available expatriate manpower resources neces-

sary to keep up with new projects being sanctioned.

Over the next decade we will see the development of huge

projects in locations such as Kazakhstan and Papua New Guinea,

where there will be a workforce requirement of tens of

thousands of personnel. Admittedly this workforce will

be a mixture of qualified expatriates together with local

semi-skilled construction workers but the message is

clear.

Questions that need to be answered are: How do we

attract new personnel into the industry? How do we train

and develop the right skills required? And how do we

retain people within the industry?

The oil and gas industry has many benefits that

should be used as attraction strategies for young professionals.

The industry is project driven and allows individuals to gain a

wealth of experience in working with a multinational workforce,

within many international cultures and to travel to some of the

most diverse locations in the world. This type of experience can

only be experienced within one or two professions and should be

used as a great attraction strategy to the next generation. These

benefits should also be utilized to attract personnel with transfer-

able skills from other industries where the demand for ‘new blood’

is not so great and where remuneration and work location can be

bettered.

This is a global industry that employs a multinational work-

force, which should be greater utilized. The historical ‘expatriate

workforce’ is changing. We can now see recruitment centers in

places such as India, Indonesia and the Philippines where ex-

perienced personnel are being seconded to the Middle Eastern

countries like Dubai and Qatar as a cheaper but equally qualif ied

alternative to Western expatriates.

Countries and regions such as Kazakhstan and Azerbaijan in

the Former Soviet Union, which had very little in the way of indus-

try-experienced locals, now has a growing young and qualif ied

workforce that are keen to travel and experience different inter-

national cultures that were formerly forbidden. These individuals

have spent the last f ive to 10 years gaining valuable industry ex-

perience by ‘ghosting’ or working alongside experienced Western

expatriates learning their trade. Authorities need to understand

that an international industry requires an international workforce

and as such diff iculties that arise due to visa and work permit

hurdles, need to be addressed.

So attracting talent to the industry should not be an issue,

with the promise of international travel and attractive remunera-

tion compared to other industries such as construction. Devel-

oping and managing talent can be achieved by ‘casting the net’

wider and looking at educating and providing experience to those

in developing countries and regions such as the Former Soviet

Union and South East Asia. Retention strategies are also a major

issue and a common factor in the contract workforce is that can-

didates are not passed from project to project within the same

company. Companies need to be made aware of when a particular

contractor is nearing the end of an assignment, and when they

can then look at available roles on new projects to enable the

retention of individuals within that organization. n

Supply and demandHow to tackle the crucial personnel challenges facing the oil and gas industry.

JohnathanJohnson

“Authorities need to understand that an international industry

requires an international workforce”

asK thE EXPERt

Johnathan Johnson is CEO of the Fircroft Group.

Firecroft.indd 95 9/12/08 16:44:18

96 www.ngoilgas.com96 www.ngoilgas.com

Oil and gas is a huge industry, prob-

ably employing over a million people

across the globe. It is a mature indus-

try and it has hundreds of billions of dollars

of investment riding on it. The industry has

long placed emphasis on the importance of

experience for those in top management po-

sitions, and correctly so. Senior management

is expected to have accumulated years of ex-

perience before they are able to take leading

positions on projects, and this is one of the

reasons why we see so much ‘white hair’ at

the helm. It has become almost mandatory

for a person rising through the ranks to have

‘done their time’. And while this is a valid

reason, it has a fl ip side, because occasion-

ally there is too much emphasis on the neces-

sity of experience and consequently you see

less young people in senior positions within

the industry.

Young talentThe oil and gas industry is in many states

of transition and faces some fundamental co-

nundrums. The biggest issue, without doubt,

is can you have energy without destroying

the environment and the planet for future

generations? To answer that will require a

fair amount of innovation both in technol-

ogy and processes, as well as a change to

how people approach the question itself.

Some of the traditional solutions have to be

thrown away because you can’t do one or the

other. Younger talent has almost an obliga-

tion to come in and change things, to bring

in new thoughts, to help break some of the

paradigms that have existed. Indeed, the in-

dustry can leverage this palpable excitement

about renewable energy to help bring more

young people into the sector.

Without doubt the mindsets and models

that have existed particularly around how

talent has been acquired, groomed and

grown in the industry, has to be changed.

We need to see buy-in from all the corporate

people, from the academic institutions and

from the professionals themselves, to see

that the talent exists. To see that it is not

only a mature sector, but that it is at the edge

of technology. The complexities that are in-

volved in profi tably harnessing hydrocarbons

requires cutting edge technology. We should

talk more about this to young graduates

coming out of universities. Working in energy

is exciting, it is innovative and it is fundamen-

tal to human growth and progress. We need

to change the way the sector is portrayed.

We need to break or at least change

some of the old assumptions and restric-

tions of recruitment. The outreach of the

industry needs to change, making people

more interested and aware of the opportu-

nities in the industry. We should be talking

to young people, trying to get them more

excited about the energy industry and to

feel a nobler, higher cause for working in

an industry that is fundamental to human

growth and progress.

Geographical trendsWhile there is no doubt that we will

start to see younger talent take over top

management positions, it will take time

as changes work their way through the en-

trenched systems. However, in the short-

term, within the next five to seven years,

I believe we will see geographical changes

too, as economic focus shifts more east-

ward and towards newer economies in

Africa. It will happen as the industry con-

tinues to embrace a rebalance, allowing

for greater talent mobility and efficiency

within the industry.

Emerging economies are creating many

young, hungry, ambitious people. By bring-

ing them in and making them mobile they

will travel around delivering efficiency.

And in the meanwhile we will see a rebirth

of people interested in energy, in the more

developed world. A decade from now we

will see a rebalanced industry, one that

relies ever increasingly on younger talent,

innovation and mobility.

HR FOCUS

Rebalancing talentIt’s not easy to fi nd a CEO aged 30 in the oil and gas industry, but that is all about to change.

YAGYA AHUJA

TOP TIPS

Yagya Ahuja’s advice for young talent: The spirit of adventure: The oil and gas industry is extremely exciting and offers you the ability to move

to exotic places around the world. You can be based in the heart of London or New York for one posting,

and fi nd yourself on a rig off the coast of Angola or deep in equatorial Indonesia in the next.

Recognize the importance of the industry: The industry is fundamental to modern human society and

helping human progress. Your work matters to humanity as a whole.

Be innovative: There is a talent gap emerging as baby boomers retire soon and younger employees

will have to learn much quicker and embrace innovation. Stand up, embrace this change and drive the

innovation that the industry needs.

Yagya Ahuja is CEO of Global Energy Talent.

Yagya_GlobalEnergyTalent.indd 96 9/12/08 15:14:44

OilCareers.indd 97 9/12/08 11:01:10

98 www.ngoilgas.com

“In the present market it is vital that management

has up-to-date information about what is happening

in the marketplace now to enable them to

make informed strategic decisions”

Christopher Wood

98 www.ngoilgas.com

In your opinion, what needs to be done to

address the serious lack of skilled and

qualified workers in the oil and gas industry

today?

Christopher Wood. For the individual com-

panies in North Europe, the US and Canada

they need to be willing to accept the skilled

labor from India, China, Philippines and

South East Asia.

At the same time they need to develop

the skills of the local workforce into lead

and supervisory positions. With an initial

strict selection process of new candidates

from overseas, training and cultural learn-

ing can be kept to a minimum, this will f ix a

short-term problem.

What are the main recruitment and reten-

tion challenges in the oil and gas industry

and how can companies ensure they are at-

tracting, developing and managing the right

talent?

CW. The main problems to be addressed are

job security, job satisfaction and plain old

boredom. This is a worry for many skilled

professionals thinking of entering into the

oil and gas industry. What can you do about

this? Firstly, invest some time training in

key areas, such as in-house software and

standards, and develop the candidate’s

skills in all areas, so the candidate can be

attractive to other departments within the

same company.

Boredom and loneliness is an issue that

many companies brush under the carpet or

just don’t understand. I have seen so many

candidates wanting to leave main cities

and large companies to come and work for

AC Engineering because we have a cricket

team, monthly quiz nights and bowling

league. To create a fun and friendly social

network within the non-local workforce is

crucial to retaining your workforce. A good

agency will spend many hours devoted to

keeping their employees happy and socially

stimulated. This can be as much fun for the

agency staff as it is for the candidate, and

the agency will benefit from this more than

they can imagine. The time and money spent

on this will be well worth it, and the agency

will gain loyalty from its employees and ap-

preciation and respect from the clients. If

a candidate leaves to join a new company

because of a few more cents an hour, this

person will probably do the same to his next

employer.

Given that recruitment is not necessarily a

core competency for oil and gas companies,

how can they benefit from bringing in spe-

cialist recruitment professionals?

CW. There are so many areas in which spe-

cialist recruitment professionals can help.

The obvious one is a fresh new pool of

skilled candidates from around the world.

Specialist recruitment professionals are

also more experienced at dealing with dif-

ferent cultures and addressing the individ-

ual needs that the culture demands, saving

time on advertising, filtering of CV’s, and in

some cases gaining a new professional proj-

ect partner, which can supply skilled labor

from project conception to commission.

How do you see the future outlook for re-

cruitment and retention in the oil and gas

industry? What trends/developments do

you think will have the greatest influence on

the recruitment sector over the next 12-18

months?

CW. With the large number of redundancies

in the financial and banking markets coupled

with predictions that unemployment will

soar next year, recruiters need to react to

changing market conditions. There is little

that can be done now but those companies

that planned and built their businesses on

strong foundations are more likely to be the

winners.

Recruiters operating in niche markets

such as parts of the public sector, medical,

energy and utilities will be well positioned.

Some niche operators will get stronger, par-

ticularly if they operate in markets where

there are candidate shortages and high bar-

riers to entry.

Agencies with a strong client-service

and ethic are more likely to maintain client

relationships under pressure from other

recruiters chasing a diminishing pool of

vacancies.

In the present market it is vital that man-

agement has up-to-date information about

what is happening in the marketplace now

to enable them to make informed strategic

decisions. n

EXECUTIVE INTERVIEW

Reacting to a changing marketChristopher Wood, Managing Director, AC Engineering, reveals his thoughts on the current challenges of recruitment and retention in the oil and gas industry.

ACengineering.indd 98 9/12/08 15:11:10

ACengineering.indd 99 9/12/08 11:01:31

100 www.ngoilgas.com

There is nothing more important to the International Marine

Contractors Association (IMCA) and its members than safety.

Indeed, the quest for ‘zero incidents’ remains at the heart of vir-

tually every guidance published by the international trade association

that represents, and works on behalf of, over 500 offshore, marine and

underwater contracting companies in more than 50 countries. Heading

our list of aims and objectives is our commitment to strive for the high-

est possible technical and safety standards. Nothing can, or should,

override this key mission statement and associated action.

Safety ranks so high up the list of IMCA activities that its two

core committees – Safety, Environment & Legislation (SEL); and

Training, Certification & Personnel Competence (TCPC) – work right

across all the special interest divisions within IMCA (Marine, Diving,

Remote Systems & ROV and Offshore Survey) and the four sections

(Americas Deepwater; Asia Pacific; Europe and Africa; and Middle East

and India).

There are a number of ongoing safety initiatives, which include the

IMCA safety flash system; publication of safety statistics and of annual

incident reports; the continued development of safety aids such as

pocket safety cards, safety posters and videos; and also the work

of the Security Task Force that addresses such issues as piracy and

security. These initiatives rely on sharing where IMCA is the conduit

The importance of safetyHugh Williams, Chief Executive of the International Marine Contractors Association, debates the issues.

SAFETY FOCUS

NGO&G_HugeWilliams 100 9/12/08 15:27:26

101www.ngoilgas.com

Safety flaSh SyStem

used to share individual experiences with the wider industry for the

common good.

Current concernsWith a strong oil price and exceptional levels of activity throughout

the offshore oil and gas industry, we are living in exciting and chal-

lenging times. The $20 billion-a-year offshore marine contracting

industry, key to the offshore oil and gas industry, is responsible for

construction work on major oil and gas field developments globally

as well as undertaking specific contract work for field improvements

and extensions. Sophisticated vessels and platforms are vital for the

safe and efficient support of underwater and surface construction, so

many would expect the industry to be overjoyed by the knowledge

that over $17 billion-worth of new vessels are in yards or in planning

and engineering phases. However, there are very strong concerns.

In a relatively short time, some 50 new marine construction ves-

sels and 600 offshore support vessels will be in service around the

world; to say nothing of 40 floating drilling rigs, 100 new work class

ROVs, 10 new portable or modular saturation diving systems, and a

whole new generation of dredgers and seismic

vessels.

The top-of-the-range installation ves-

sels will be fitted with cranes of 3000t-5000t

capacity, whilst the top-of-the-range pipelay

vessels will have up to 60” diameter pipe

handling capacity. Except for vessels such as Allseas’ Solitaire and

Lorelay, nothing like these top-end vessels has been built for two or

three decades. A new breed of ‘single lift’ vessel with capacities from

20,000t-48,000t is also being built with decommissioning in mind. At

the same time, more heavy lift transport ships are being added to the

fleet, and these, plus some of the offshore support vessels, may be

used for offshore construction projects.

The offshore fleet is certainly about to become physically larger

(in terms both of the number of vessels and their actual size), and more

sophisticated, with the majority featuring dynamic positioning (DP)

and state-of-the-art control systems. Many vessels will have the scope

to fit and operate additional capacity such as cranes, ROVs, diving

systems and reels for pipelines, umbilicals and cables. We’re moving

into a new era, but there is a major concern about whether skills and

safety levels will match the sophistication of this ‘new-look’ fleet; and,

of course, there is a pressing need for current and new supply bases to

accommodate these large vessels, and all the high tech equipment that

goes with them. Progressively we should be considering new bases in-

corporating supply chain elements; for example, major contractors are

establishing shore-based pipeline fabrication and spooling facilities in

remote areas as close to offshore fields as possible.

One item topping the IMCA agenda is the global concern about

skills shortages. To operate just these new construction vessels, we

need 2000 additional watch-keepers across the bridge, deck and

engine room; 800 personnel in saturation diving and related positions;

1000 additional survey and inspection personnel; 1200 ROV personnel

and many other diving, support, project and engineering personnel. It

is a huge ask.

With zero incidents in mind, all these people, newly recruited to

the industry, must be capable of absorbing the available knowledge

and taking on board industry safety objectives. Training must continue

across the board to keep them safe – training establishments and

trainers will be in high demand. Yes, even more people will be needed

to man them.

It may be that many of the people new to the industry have trans-

ferred from other sectors of the civil or defence marine industries, but

whatever their background and wherever they are from, training to the

high levels required by the offshore oil and gas industry, and adopting

the ethos of our industry is vital.

Sophisticated technologyWithin the offshore contracting industry we are used to multi-redun-

dant, fail-safe systems. The lack of new vessels over the past decade

A key tool of IMCA is its safety flash system, which enables prompt distribution of safety flashes across the industry on topics that would otherwise pose a latent hazard to other members. The purpose of an IMCA safety flash is to notify IMCA member companies of a significant hazard that could be present at their worksites and to provide solutions for controlling the hazards. Such a hazard may already have led to a fatality, injury or illness at a member’s site or it may be a recognized problem that could lead to an unwanted incident. In either case, the publication of such hazards through the IMCA safety flash system keeps people informed and helps prevent similar occurrences.

“We are going to see very sophisticated vessels operating in deeper and more hostile waters – it really is ‘new frontier’ country”



or so has meant working with vessels with long histories. Systems

have been added and evolved, teething problems ironed out and per-

formance improved. Now, fresh from the yards we are going to see

very sophisticated vessels (with similarly sophisticated equipment

fitted on them) often going straight out to remote oil and gas prov-

inces. Almost without exception, this will see them operating in ever

deeper and more hostile waters far from shore – yes, it really is ‘new

frontier’ country. What can we expect?

Debating the issuesThere is no simple answer to the three inter-linked issues of skills

availability; skills and safety; and the impact of new technology. We

need to debate the issues, get feedback and views from across the

industry and ensure we work together to identify challenges and set

the wheels in motion to share solutions. IMCA’s real-time safety flash

system will be used to share specific operational knowledge as it

becomes available.

Collective wisdomThe new fleet and its new personnel will want to learn from the col-

lective wisdom of the past. This is contained in new design codes

that have improved since much of the current fleet was built. But a

considerable contribution comes from the equipment specifications,

procedures and personnel competence described within IMCA’s

good practice guidelines. These also address trials and commission-

ing; ‘failure modes and effects’ analyses; audit and maintenance

programs developed on past successes and occasionally from past

incidents; and the development and recognition of competence in the

workforce.

We can certainly help to build strong foundations for the new fleet

and new people who will be joining the industry. IMCA has published

over 200 guidelines relevant throughout the world. The most pertinent

to the new fleet may be DP for supply vessels (and many other DP docu-

ments including incident analyses); the Common Marine Inspection

Document; training and competence framework; crane specifications

and lifting operations; maintenance of wire ropes; communications

(bridge and dive control); incident investigation; vessel and person-

nel security (including ISPS); as well as the suite of diving documents

that support IMCA’s International code of practice for offshore diving.

There are specific guidelines relating to various aspects of safety, and

also our much-used safety promotional material aimed at individuals

within the industry, but safety and efficiency are the goals of the con-

tent of almost all our guidelines.

a living exampleIMCA’s Common Marine Inspection Document (CMID) was developed

originally to reduce the number of audits carried out on individual ves-

sels, together with the adoption of a common auditing standard for

the offshore marine industry. It is gratifying that the CMID is seeing

ever-greater adoption around the world and members are actively

promoting its use to clients, sub-contractors and other vessel opera-

tors. Indeed, a significant part of the international offshore industry

has accepted the CMID as the standard for vessel inspections, and

therefore when requesting copies of recent inspections they will

expect them to be in the format laid out in the CMID.

The CMID is treated as a living document. Some parts can be

completed by the crew prior to an independent auditor’s arrival and,

thereafter, the vessel’s crew can keep it updated wherever possible,

so that the minimum amount of work is required at each audit, and

auditors can spend their time on board as effectively as possible. We

view it as so important that it was the subject of one of the workshops

at our annual seminar, when we explored how the CMID is used in

practice and how the use of the document can be enhanced. It is vital

to ensure that the CMID meets (and indeed exceeds) all needs and that

there is no need for duplication of effort, something that would dissi-

pate the element of self-regulation, a key step in ever-increased safety

standards, that is now working so well.

In our desire to facilitate safe and efficient marine operations,

we look forward to a challenging and far-reaching debate and

resolutions to ensure the enlarged offshore fleet can operate optimally

– and safely. n

Hugh Williams is Chief Executive of the International

Marine Contractors Association (IMCA), which represents

offshore marine and underwater engineering companies

worldwide. The association has over 500 company

members in 50 countries around the globe. Williams is a

chartered civil engineer with 33 years of broad experience.

His career has focussed on marine operations particularly

heavy lifting and marine construction in the offshore oil

and gas industry.


Proforma.indd 103 9/12/08 11:01:51


Today, everybody is extremely worried

about banks and financial institutions;

nobody is concerned about oil compa-

nies. Oil companies have always been in very

strong financial shape. They have never had

low work debt on their balance sheets as

they have now, but the future is uncertain. It

is a double-edged sword. They have record

earnings, but most of their stocks are trad-

ing, or at least sustaining, the biggest drop

in history. The market is confused because

of all these changes that are happening very

rapidly; the prices are not reflecting supply

and demand fundamentals.

There is tremendous speculation in the

marketplace. Most investors have no place

to go, so they are bidding out commodities

and oils. You can see the indecision, the

confusion, the chaos, the lack of leadership,

the little faith in government decision and

officials, and all these things are factors

that will have a long-term impact on the

whole industry.

We need speculation in any market;

we all speculate, but these speculators

are those financial players that have no

intention whatsoever of owning the physi-

cal commodity. Excessive speculation is

harmful and exaggerates movement in the

price of a commodity, forcing companies

into making decisions that are not good in

the long-term. When oil prices were $148,

many companies made decisions that they

will live to regret a year or two years from

now, because oil prices are not sustain-

able at $148 or even at the current level.

We are going to see the impact of high oil

prices on consumer spending and inflation.

It also hardens the position of the national

oil companies, which is why we have limited

access to resources – because most of the

companies that own the resources are in

no hurry to open access as there is no com-

pelling reason for them to allow foreign oil

companies access. These companies make a

great deal more money by producing less oil

than if they were to allow oil companies to

come and develop and increase output. We

are seeing that happening with BP in Russia

and we’re seeing that happen in Venezuela.

At a lossHaving been in the business more than

25 years I am no longer surprised to see

anything happen in the oil market. People

don’t realize that the oil markets are not free

markets. They are far from free, because

more than half of the oil supply in the world

is coming from OPEC and Russia. By defini-

tion when you have a cartel controlling more

than 25 percent of a commodity, there is no

free market. On the other hand, the demand

for petroleum product is also not free. Why?

Because of taxation. On the supply side, it is

distorted by a cartel; on the demand side, it

is distorted by taxation and subsidies.

In terms of the strongest players in the

oil and gas industry, Exxon Mobil is by far

the strongest. It has the financial flexibility,

The price of oilFadel Gheit, one of Wall Street’s top energy analysts, reveals who is to blame for record oil prices and who actually sees the profits.

ANALYST VIEWPOINT

FadelGeith_oppenheimer.indd 104 9/12/08 15:12:10

Crowcon.indd 105 9/12/08 11:02:19


one hand, the governments of both the con-

suming nation and exporting nation blame

oil companies, but they are also causing the

problem because the consuming nations are

putting huge taxes on motorists using gaso-

line and diesel, and taking a huge amount of

profi t away from oil companies in the form

of taxation and royalties, and the exporting

countries are milking oil companies to the

last drop they can get their hands on.

Oil has been and will continue to be used

as a political weapon. It is not a free market,

it does not refl ect supply and demand fun-

damentals, and it is creating a lot of mess

around what is happening in Russia, Ven-

ezuela, Nigeria and Iraq; if it were not for oil,

we would not be in Iraq. We have no interest

in Afghanistan because it doesn’t have oil,

but we are more interested in Iraq because

Iraq has oil.

the end of the day they actually lose money.

Now Russia wants to cut this tariff in half

to get them decent profi ts of $5 or $6 per

barrel. This is because government greed

increased signifi cantly with the rise in oil

prices.

This is happening all over the world. On

the global reach and the technology; how-

ever, this begins backfi ring on it because it

cannot grow production or reserves without

attracting public scrutiny. Look at what

happened in Venezuela, for example. Hugo

Chavez is exacting revenge on oil compa-

nies because he says that their actions are

representative of the US. But the companies

themselves have nothing to do with the po-

litical leaning of Washington versus Venezu-

ela, so you can see the larger the company,

the bigger the scrutiny and the more pres-

sure they have from politicians, from the

public and from foreign governments.

This is why large oil companies have

lost more this year in terms of valuation and

market value, than any time in their history.

Although they are all going to have record

earnings this year, Exxon Mobile’s market

value dropped by more than its record

earnings in the last two years, so here is a

company that generated almost $100 billion

of profi t, but its own market value dropped

by more than $100 billion.

More taxIs seems like too much of a good thing

is a bad thing. And now people are think-

ing that maybe we should put additional

taxes on oil and gas companies. In Russia,

oil companies are losing money. At $100,

they are losing money. They were making

money when oil prices were $35, but they

are losing money when oil prices are $100

Why? Because Russia has a $35 per barrel

tariff that is fl at. The owners imposed this

tariff a few months ago, and by the time you

incorporate the production and transporta-

tion costs, as well as the very high effective

tax rate, and then hit them with $35 tariff, at

“Oil has been and will continue to be used as a political weapon. It is not a free market, it does not refl ect supply and demand fundamentals”

There will be a compromise on drilling the outer continental shelf over the next couple of

years. Technology has improved signifi cantly over the last decade. If people cannot see the

drill ships, if they cannot hear the noise, if they can’t smell anything, it doesn’t exist. So

drilling 20, 30, 40 miles away from shore should not be any problem to anybody. I cannot see it, I

cannot hear it, I cannot smell it, so it doesn’t exist. The government has experimented with a lot

of things that we don’t hear, we don’t see, we don’t smell, so we don’t think that we are doing it.

But guess what: they are taking place every single day. I am not sure if I agree with the people

who are opposing offshore drilling, but on the other hand, I cannot overemphasize how naïve the

bunch of cheerleaders are who say, “Drill baby drill,” as if there is something that is guaranteed – I

mean shooting fi sh in a barrel. It doesn’t work this way. They are a bunch of idiots and they are

very fl at-minded. They have no clue how this business works. Even if we allow the oil industry to

drill tomorrow, we are not going to see a drop of oil for another fi ve years if we are successful, and

I’m not even sure we would be.

OCS: TO DRILL OR NOT TO DRILL?

FadelGeith_oppenheimer.indd 106 9/12/08 15:12:14

Computit.indd 107 9/12/08 11:03:23

ReflexMArine.indd 108 9/12/08 11:03:50

109www.ngoilgas.com

Manyoperators are now lookingmuchmore closely at their options

and re-evaluating their establishedcrewsupplymethods.Choices

are being influenced by a number of factors, such as cost, down-

time risk, passenger comfort, journey times and

last, but not least, safety.

Recentdevelopments in themarinesector look

set to have important implications for operators.

Fromasafety perspective, byusingbetter-designed

equipmentandimprovedoperationalcontrols,oper-

atorscanexpectinjurylevelstofall toafractionofcur-

rent rates and fatalities to be virtually eliminated.

Many operators are already seeingmajor improve-

ments in their vessel-basedcrewsupplyoperations.

Inthepastmarinebasedcrewsupplyhasreceivedlit-

tlepriority incomparisontoitsmore‘wellhealed’avi-

ation cousin. A lack of reliable information has also

led tomisconceptionsabout the relative risksof dif-

ferent crewsupplymethods andhas also tended to

mask some important breakthroughs. Higher quali-

tyoperationalandincidentdatawouldaidrisk-based

decision-making, and allowmore effective tracking

ofperformanceandallocationof resources. If the in-

dustry canmove in thisdirection, choiceswill bede-

termined less by myth and hunches and more by

rationalevaluation.

The improving safety of crane transfer opera-

tions, combinedwith the introductionofanewgen-

eration of faster, more comfortable vessels could

soon change the face of offshore crew supply and

shouldalso result insignificant cost savings forop-

erators. The issues of transit speed andpassenger

comfortarenowbeingaddressedbysomeforward-

looking vessel operators. Seacor Marine LLC has

just completed a new 170ft CrewZer Class DP2 high-speed aluminium cata-

maran, which will be the fastest vessel in the US-GOM, capable of speeds

ranging in excess of 40 knots. This state-of-the-art vesselwill carry up to 150

passengersand journey timesareexpected toconsiderablyclose thegapbe-

tweenboat andhelicopter transport.

The CrewZer vessels will also incorporate a high capacity personnel

transfer safety systemspecially developed for the vessel byReflexMarine.

The nine-man Frog capsule will transfer personnel from the vessel to plat-

forms in a protected and safe environment. This project sets an industry

precedent, as the first direct collaboration between a vessel operator and

transfer specialist.

The vessel is rated DP2, making for excellent

station-keeping, and the catamaran hull provides

superb stability, minimizes vessel roll and a wide

deck reduces collision hazards. The landing area is

positioned amidships for increased stability, bet-

ter visibility from the bridge and improved access

for passengers. A special passenger flow system

is under development and a number of special

guidance and protective features are being devel-

oped to improve safety and increase the opera-

tional envelope.

Aswellasprovidingasafe,efficientandreliable

alternative tohelicoptercrewsupply, theCrewZerwill

offer a highly capable evacuation capability. It will

allow hurricane evacuations to be performed in

much less time than that required toperformaheli-

copter evacuation. This important provisionwill ex-

tend the decision window and allow operators to

reducethe lengthof (orevenavoidcompletely)cost-

ly production shut downs.

The CrewZer, designed by the world’s fore-

most catamaran designer Incat Crowther in New

SouthWales, Australia, has been constructed by

leading boat builder Gulf Craft in Patterson,

Louisiana. It will enter service in the US GoM in

early 2008 and will also be marketed interna-

tionally. Conceivably, once the concept is proven

and widely accepted, operators could use the

CrewZer (which has wireless internet, satellite TV

and cinema) like a high-seas carpool, paying only for usage.

Change isafoot in the industryandmanyoperatorsarenowtakinga fresh

lookat their crewsupplyactivities.Exceptionalprogresshasbeenmade in the

development of safer,more efficient alternativeswith operators, vessel own-

ers and transfer specialists allmaking important contributions.�

in offshore crew supplyFew would dispute that the provision ofsafe and cost-effective crew supply is nota nice-to-have, but a pre-requisite for theoffshore industry. Philip Strong looks athow this can be achieved.

Frog is a registered trademark

Philip Strong is one of the joint

founders of Reflex Marine. He has

spent much of his career in drilling,

production and marine operations,

working with BP and Enterprise Oil.

Strong holds several patents and is

accredited as inventor of the ‘Reamer

Shoe’ winner of the Scottish Offshore

Innovation Awards (Technical Prize).

A new eraINDUSTRY INSIGHT

REFLEX MARINE1:29 MARCH 9/12/08 15:48 Page 109

An industry going HIGH-TECH


TECHNOLOGY FOCUS

stephen brand.indd 110 9/12/08 15:20:06

A few decades ago the capture of hydrocarbons was a fairly

straightforward process: you drilled into some Texan scrub and

if your luck was in, you struck black gold. The Beverly Hillbillies

television show springs to mind. Nowadays, the search for oil

and gas has become a precise science with millions of dollars

ploughed into technologies to discover, develop and recover oil and gas from

new and existing wells. The oil and gas giants are working smarter, as well

as investigating alternative forms of energy in these carbon-conscious times

that we live. Although fossil fuels will remain the cornerstone of the business

for the foreseeable future, companies like ConocoPhillips, the third-largest

integrated energy company the US, are looking to diversify in order to meet

soaring demand. This couldn’t be achieved without technology.

To illustrate its importance in the energy arena, ConocoPhillips has ear-

marked around $400 million for technology alone in 2008. The Houston-based

company plans to spend approximately $150 million of this budget for research

on the development of alternative energy, including non-conventional oil and

gas resources.

Stephen Brand, SVP of Technology, who began his career more than 30

years ago as a geologist in exploration and production (E&P) with Phillips

Petroleum Company, feels the industry is light

years ahead today. “Signifi cant advancements

in drilling, well completion and seismic technolo-

gies have been made during my career and these

advancements must continue in order to meet

our growing energy demand and to maximize our

energy resources.” He says feats accomplished in

the seventies pale into comparison to exploration

efforts we see now. “In 1976 [when Brand started

out in the industry] we thought 600 feet of water

was deep – now we’re exploring and producing in

water that is 8000 feet deep.”

Fresh focusAlthough Brand’s career has been mostly in

the E&P arm of the business, his new job is still

intertwined with his old one. “My previous roles

in E&P and my current role as SVP of Technology

really have similar issues; both areas are all about

portfolio management, risk assessment and

fi nding long-term solutions to address the future

of energy supplies while, in today’s world, also

reducing the environmental footprint of energy

development and usage.”

O&G catches up with Stephen Brand, SVP of Technology at ConocoPhillips, for an alternative view of this energy giant’s operations.

Stephen Brand




has gained practical experience with some different technologies.”

Both ConocoPhillips and LUKOIL have a management exchange pro-

gram, with company offi cials making the trip from Houston to Moscow and

vice versa. This has boosted knowledge and effi ciencies. “Through this

program we have come to better understand each other and have shared

best practices and knowledge,” Brand enthuses. “We see signifi cant value

from the program today and see increased benefi ts from having worked

together as we expand our co-operation into other opportunities.”

But with a company as large as Cono-

coPhillips, identifying which technologies

to pursue and develop can create some

tough decisions. So how does Brand make

these choices? “We consider how new

technologies complement our current

asset portfolio in determining where and

how we make new investments. We also

consider the future, long-term strategy of

our company and how new technologies

can support this strategy.” He also notes

how problems [he prefers challenges] are

thrown up everyday in this industry.

“We face unique challenges in every

region in which we operate, including the

Lower-48 and Alaska, and the Russia and Caspian region is no excep-

tion. The biggest challenges facing us, and the industry, are access to

material opportunities, increasing cost pressures and timely availability

of goods and services for new developments.”

The outlook In the meantime, the focus for the industry is on bringing oil and gas

to market. However, increasing effort will go into exploiting new technolo-

gies in order to diversify US energy production. Increasingly, we are going

to see investment in renewables like wind and solar, alternatives such as

clean coal and nuclear, and biofuels. After all, oil and gas isn’t going to

be around forever. But all of these alternative options come with unique

issues: biofuels, for example, will only meet a tiny fraction of the soar-

ing energy demand we are witnessing globally – largely generated by the

rapidly developing economies like China, India, and parts of the Middle

East. Also, fuel from food pushes up the price of many staple food types.

Indeed, the food versus fuel debate looks set to run and run.

Brand’s remit encompasses pretty much most areas of this major’s

operations. His technology organization within ConocoPhillips covers

E&P technology such as seismic and drilling, downstream coking technol-

ogy, research into second generation renewable forms of energy, carbon

capture technologies, transforming non-conventional fossil sources such

as heavy oil into clean fuels and converting coal into clean-burning natural

gas. It also works with other alternative forms of energy such as wind,

solar, geothermal and lithium-ion batteries. It is little wonder then that

Brand says the oil and gas industry “relies heavily on technology” in order

to function in a highly-competitive environment.

A major project in the pipeline is the state-of-the-art Global Technol-

ogy Center that ConocoPhillips is planning to build in Louisville, Colorado.

The 432-acre plot of land, halfway between Denver and Boulder, is being

established to support the R&D growth areas, says Brand. It will become a

leading facility in the research of innovative technologies, including biofu-

els, environmental technologies, non-conventional and other alternative

technologies. The goal is to open the center by 2011, although 2012 looks

more likely. Colorado appeals to the energy fi rm, being home to the US

Department of Energy’s National Renewable Energy Laboratory as well

some of the fi nest learning institutions investigating renewable energy.

“Colorado is becoming a hub of alternative energy development, and we

are planning to build our technology center in

a location that will capitalize on our relation-

ships with and proximity to excellent research

universities, government laboratories and

think tanks,” Brand explains.

“The technology center will focus on a

wide variety of energy research activities

across the upstream, downstream and alter-

native energy spectrum.” Brand goes on to say

that the facility will also become a dedicated

training facility to offer employees worldwide

technical training in core disciplines, as well as

personal development and leadership skills.

Currently, there isn’t a fi t-for-purpose train-

ing center available within the corporation. In

addition, as this facility is being designed and developed, there will be a

number of additional factors taken into consideration. “Anything we build

in this center will be green, state-of-the-art, and set in an open, natural

environment that refl ects the beauty of the surroundings,” Brand says.

New frontiers Outside of the US, ConocoPhillips has a strong portfolio of invest-

ments that are delivering healthy returns thanks to the sharing of tech-

nology. An example would be the fi rm’s 20 percent share in Russian giant

OAO LUKOIL. First-quarter results showed that profi t soared to US$710

from US$256 million. It’s a deal that has fl ourished, says Brand. “We have

found our co-operation with LUKOIL to be very productive in terms of

knowledge and technology transfers. Our Naryanmarneftegaz joint ven-

ture is currently developing the YK Field with fi rst production scheduled for

summer 2008. This is a mainly LUKOIL-style development which Conoco-

Phillips has supplemented with our experience from Alaska and Canada.

We have learned better how to implement projects in Russia while LUKOIL

FACT FILE

• ConocoPhillips is the third-largest integrated oil company in

the United States

• The fourth-largest refi ner in the world

• The sixth-largest worldwide reserves holder of non

government-controlled companies

• It currently has exploration efforts in 23 countries, producing

2.3 million barrels of oil equivalent (boe) a day (includes

LUKOIL and Syncrude)

• Has earmarked $12 billion for E&P in 2008

“We’ve increased our research and development activities in technologies that complement our existing businesses and provide strong growth opportunities in energy alternatives”


Brand says ConocoPhillips believes that fossil fuels powering today’s

economy are needed to serve as bridging fuels until the energy sources of

tomorrow are developed in suffi cient scale. He adds: “Concurrently, we are

working to bring non-conventional fossil fuels to market in cleaner forms

while developing biofuels and other renewable energy sources. We are ex-

panding our ethanol and biodiesel blending

capabilities. We are also funding research

into second generation renewables using

non-food cellulosic materials that will not

compete with the world’s food supply.”

Last year, the oil giant announced

that it plans to establish an eight-year,

$22.5 million research program at Iowa

State University dedicated to developing

technologies that produce biorenewable

fuels. It has also entered into agreements

with Archer Daniels Midland Company

to work together on the development

of renewable transportation fuels from

biomass. Another agreement has

also been struck with Tyson Foods,

Inc. to produce and market the next

generation of renewable diesel fuel.

ConocoPhillips says the alliance, which

uses beef, pork and poultry by-product fat to create a transportation fuel,

contributes to America’s energy security and helps to address climate change

concerns. The energy major also produces renewable diesel fuel from vegetable

oil in Ireland. Impressive stuff indeed.

Although Brand has occupied this key post for little more than a year, it’s

clear from speaking to him that he is relishing the challenge ahead. And his role is

going to grow in stature and importance in the coming years with technology now

engrained in the oil and gas industry’s psyche. So what’s next for ConocoPhillips?

“Our investment in technology will be spread out among the topics I mentioned

before, but we will also focus our efforts on innovative technologies that we

believe will actually be successfully deployed in the future,” Brand responds.

“We’ve increased our research and development activities in technologies that

complement our existing businesses and provide strong growth opportunities in

energy alternatives. The future will potentially see further expansion of technol-

ogy innovation undertakings and investment.”

Stephen Brand, who assumed his current role in

October 2007, was previously, VP of Exploration

and Development. Prior to that, he was President

of Australasia following the ConocoPhillips merger

in 2002. He had previously been general manager,

Australia division. Brand graduated from the University

of Minnesota in 1971 with a bachelor of science degree

in geology. He received a master of science degree

in geology in 1973 and a doctorate in 1976, both from

Purdue University.

TECHNOLOGY AND INNOVATION INITIATIVES

Fuels technology: ConocoPhillips is investigating greater

use of ethanol in gasoline, removal of unwanted byproducts

from fuel, identifi cation of more effective refi nery catalysts,

potential molecular-level enhancements to fuel blends,

and thermo-chemically converting cellulosic

biomass – wood, corn stover and switch grass –

into bio-oil. The company is also looking to use beef

and pork by-product fat for a transportation fuel.

Heavy oil: In partnership with EnCana,

ConocoPhillips operates a heavy oil business. Its

heavy oil capabilities are also aiding in evaluating

the feasibility of producing shale oil in the US Rocky

Mountains. A similar approach is being used to

analyze the producibility of natural gas hydrates –

methane trapped in ice in arctic regions and beneath

seabeds.

E-Gas: This technology offers the potential for coal

industry customers to burn it more cleanly while

generating purer streams of carbon dioxide that can be

used in industrial processes or injected to recover more

oil from aging reservoirs and potentially more methane

from coal beads.

Carbon sequestration: Research continues on capturing

waste carbon dioxide and injecting it deep underground

into depleted reservoirs, thus reducing atmospheric

emissions. ConocoPhillips has developed technologies

that reduce both energy use and emissions at the source.

Water sustainability: In mid-2007, the company

announced plans to establish a global water

sustainability center that will examine ways of treating

and using by-product water from oil production and

refi ning operations. The center, jointly owned by GE and

based in Qatar, will see $25 million of investment in the

fi rst fi ve to seven years.

Next generation biofuels: Last year, ConocoPhillips

and Archer Daniels Midland Company announced

an agreement to collaborate on the development

of renewable transportation fuels from biomass.

ConocoPhillips also announced a strategic alliance

with Tyson Foods, Inc., to produce and market the next

generation of renewable diesel fuel. This is in addition to

a $22.5 million research program at Iowa State University

into biorenewable fuels.

Source: ConocoPhillips

capabilities. We are also funding research

into second generation renewables using

non-food cellulosic materials that will not

Last year, the oil giant announced

that it plans to establish an eight-year,

$22.5 million research program at Iowa

State University dedicated to developing

technologies that produce biorenewable

uses beef, pork and poultry by-product fat to create a transportation fuel,

from fuel, identifi cation of more effective refi nery catalysts,

potential molecular-level enhancements to fuel blends,

and thermo-chemically converting cellulosic

biomass – wood, corn stover and switch grass –

into bio-oil. The company is also looking to use beef

and pork by-product fat for a transportation fuel.

Heavy oil

ConocoPhillips operates a heavy oil business. Its

heavy oil capabilities are also aiding in evaluating

the feasibility of producing shale oil in the US Rocky

Mountains. A similar approach is being used to

analyze the producibility of natural gas hydrates –

methane trapped in ice in arctic regions and beneath

seabeds.

E-Gas:

industry customers to burn it more cleanly while

generating purer streams of carbon dioxide that can be

used in industrial processes or injected to recover more




He controls a multibillion-euro IT budget and co-ordinates the activities of 96,000 employees worldwide. But for Patrick Héreng, CIO of Total, the biggest challenge is yet to come as the oil giant prepares to upgrade its entire IT infrastructure. He meets Diana Milne to discuss the task ahead and the threats his organisation faces from cyber criminals.

MISSION CRITICAL

IT FOCUS

NGO&G4_ParrickHereng2.indd 114 9/12/08 15:36:00


There is only one way for Patrick Héreng to convey the com-

plexity of the operation he oversees, and that is through

numbers. When I ask him at the start of our interview to give

me some idea of the scale of Total’s IT systems, he sums it

up with the following vital statistics: “The global IT budget

fi rst of all is around $1.5 billion. The number of internal IT staff is

around 2200. We are managing 1500 physical sites and nearly 80,000

workstations. We probably use more than 2000 terabytes a minute.”

These numbers should come as no surprise. After all, as CIO of Total,

Héreng manages the IT operations of one of the world’s largest oil and

gas companies with activities in over 130 countries and 96,000 em-

ployees worldwide. But they are, nonetheless, mind-blowing – and set

to become more so since the launch of Perspective 2008, a colossal

project that will see the company replace its entire IT infrastructure,

upgrading all components from workstations to network security.

The scale of Total’s IT operation is due not only to the size of the

company and its workforce but to the complexity of its oil and gas

exploration and refi ning activities, which rely heavily on technology

for their success.

To support these activities the company’s computing power

expanded seventeen-fold in the past fi ve years – an increase which

refl ects the growing pressure on Total to source new oil supplies in

a highly competitive global market. It uses highly complex technical

computing methods such as digital oil fi eld and geophysical analysis

to source oil, and this year it become the global leader in scientifi c

computing power after acquiring the high performance SGI Altix ICE+

computer from Silicon Graphics, which is capable of making 123 tril-

lion calculations a second. “The most complex IT system is the tech-

nical computing that is used for exploration and production,” says

Héreng. “An example of that is geophysical analysis such as reservoir

modelling to fi nd the oil and optimize the ways of producing it. Digital

oil fi eld is another complex IT system. We must fi nd oil and to do that

we are doubling our computing capability every year.”

This system creates enormous amounts of data and Héreng says

the company has reached around 1200 terabytes of storage capacity

for technical computing alone. Equally complex are the company’s

supply chain and logistics operations, which are supported with solu-

tions from SAP and Microsoft.

Describing the scale of the operation, Héreng says: “We have

complex IT systems for supply chain, logistics and CRM as well as for

petrochemical, refi ning and marketing activities. These systems are

mainly based on global SAP. There are now 11 refi neries in 10 coun-

tries and 10,000 service stations in Europe. That requires a complex

information system, especially for the supply chain from the refi nery

to the service station. And we have millions of customers every day

in the service stations so the CRM is complex there also,” he goes on

to say.

While Total’s operations require the support of cutting edge IT so-

lutions, the delivery of that technology is often compromised by the

remote and often hostile environmental conditions that it operates

in. Total’s E&P activities span 40 countries, with production in 30 of

those, including remote locations in Angola, the North Sea, Venezuela

and the Democratic Republic of Congo.



TOTAL IN NUMBERS

“It’s not so easy to make decisions in this federated IT organi-

zation because the decisions must be accepted by every business

unit. The current governance model is a mix between a decentralized

organization which reinforces the alignment between IT and the busi-

ness and the globalized architecture which optimises the cost of the

information system.”

The system will be put to the ultimate test during the upgrading

of Total’s IT infrastructure for Perspective 2008, which aims to create

uniform IT services across the organization. The project has been two

years in the planning and so far the fi rst phase – deploying telephony

over IP for 2000 employees – has been completed. Héreng admits that

the federated structure of the company’s IT operations created chal-

lenges during the planning stages of the project. “We have a feder-

ated organization but now we must align the IT processes of everyone

in the group. This means, for instance, that if we want to deliver the

same level of services to E&P and to our specialized chemical sub-

sidiaries, we have to align the way we support users and the way we

operate servers. That’s one of the main challenges and we face a lot

of resistance to change inside the IT departments. Add to this the fact

that we have to co-ordinate the deployment across 130 countries and

it’s a very challenging project.”

He hopes, however, that Perspective 2008 will help to address

some of these challenges by providing uniform IT services across

Total’s global business units. The project includes the upgrading of

employees’ workstations to facilitate better collaboration across the

different departments using Microsoft Vista technology. “The goal is

to deliver for everywhere the same level of services. We will deploy

collaborative workstations and we will deliver to the users the tools

to improve collaboration such as instant messaging from computer to

computer and integration between the workstation and voice commu-

nication. “We will provide unifi ed communications such as a unifi ed

email system and Web 2.0 capability to provide social networking ca-

pabilities to improve collaboration inside the organization,” explains

Héreng.

But while facilitating better collaboration between Total’s employ-

ees will be a major benefi t of Perspective 2008, it is not the project’s

main aim. That, says Héreng, is to improve Total’s IT security.

Héreng describes how he is often required to deploy IT solutions

in an environment where no infrastructure to support the technology

exists, particularly on offshore oil platforms where establishing a

telecommunications network poses a major challenge. “Usually we

are located in the middle of nowhere and if we look at the infrastruc-

ture in those remote areas, there is nothing. Often there is no tele-

communications so we have to create telecoms links using different

solutions, mainly satellite equipment. Sometimes we deploy marine

offshore optical fi bers. That is one of the problems – the limitations

we face because of the platforms and because in a lot of the countries

we can’t fi nd the level of service needed in telecoms – for instance in

Africa and Asia – and that means we have to manage internally, lo-

cally, or we accept those limitations.” Given the scale of Total’s global

activities, the company operates within a decentralized ‘federated’

structure which means operations are managed at business unit level.

Total’s IT strategy and policies, however, are governed by a central IT

department with separate IT departments within each business unit.

The information systems of each business unit are supported by a

common global architecture. This structure, says Héreng, creates its

own challenges, particularly when it comes to decision-making.

Total at a glanceWith operations in more than 130 countries, Total engages

in all aspects of the petroleum industry, including upstream

operations (oil and gas exploration, development and

production, LNG) and downstream operation (refi ning,

marketing and the trading and shipping of crude oil and

petroleum products).

Total also produces base chemicals (petrochemicals

and fertilizers) and specialty chemicals for the industrial

and consumer markets (rubber processing, adhesives,

resins and electroplating).

In addition, the company has interests in the coal

mining and power generation sectors. Total is helping

to secure the future of energy through its commitment

to developing renewable energies, such as photovoltaic

power, marine energy and second-generation biofuels.

largestpublicly-traded integrated international

oil and gas company in the world.

4th

96,400 employees

Operations in more than

130 countries

Exploration and production operations in more than

40 countries


Gilat.indd 117 9/12/08 11:04:15


Protecting Total’s networks is one of the most challenging

parts of Héreng’s job – particularly given the huge amounts of

highly sensitive data it processes daily and the increased security

threats faced by oil companies from international cyber criminals.

This, he says, clashes with the organization’s need to improve ac-

cessibility to its systems for remote Total employees and custom-

ers. “I have to face a paradox which is not simple to solve. We have

to open the system but at the same time secure the system more.

Because of the extended enterprise we have to link our informa-

tion system to suppliers and customers for billing or procurement

purposes. Our users also need to access the system from PDAs or

non-Total workstations and they want to do that everywhere in the

world, from Asia and Central Africa to the USA or France. At the

same time, we have to secure the system. We are not as attacked

as banks but there are risks. We have to protect our knowledge

and our data and that’s the reason we increase continually the

level of security in the information system. It’s the main reason we

launched the Perspective 2008 programme – to be able to face the

security threat in the future.”

Perspective 2008 will see Total completely overhaul its se-

curity systems, extending its current perimeter limit security and

integrating it throughout the system. “We will have embedded se-

curity inside the information system, inside the network, inside the

LAN and inside the workstations and data centres,” says Héreng.

“We will deploy a new ID management system which will allow

us to have better management of the rights given to employees,

contractors and partners accessing the information system. ”He

goes on to say that under the new system data, will be classifi ed

according to the level of protection it requires rather than provid-

ing uniform security to all parts of the organization. A variety of

security solutions will be provided by several vendors, which will

be integrated by IBM.

Héreng is remarkably calm about the mammoth task that lies

ahead of him, claiming he relishes the challenge of managing IT within

what is probably one of the world’s most complex operations. “I enjoy

my job although it’s quite complex. One of the major advantages is

to be working for a global company. That’s one of the pleasures I

have every day,” he says. I ask Héreng whether Total’s management

places a high priority on IT. “No,” he replies. “The high priority for

Total is to fi nd oil to renew the resource.” But with technology playing

an increasingly crucial role in enabling oil companies to fi nd new oil

sources and protect valuable data, Héreng’s role is pivotal to the suc-

cess Total enjoys within a highly competitive global market.

Patrick Héreng, 51, was appointed CIO of Total in 2006. He is a graduate of the French Institut Superieur de l’Electronique du Nord (ISEN), joining the Group in 1998 as Chief Information Offi cer for the refi ning and marketing division. He began his career with a computer manufacturer and then with an information and telecommunication consulting company, later becoming the CIO of a large French fi nancial institution.

Approximately 540,000 French individual shareholders

2007 sales: 158.7billionbillion largest capitalization on

the Euronext Paris and the Euro zone: �

136.1 billion at December 31, 2007

2nd

Producer of oil or gas in

30 countries

TOTAL IN NUMBERS


Honeywell.indd 1 9/12/08 15:09:23


Oil and gas ex-

ploration teams are

often deployed in remote and

inhospitable locations. Weather

conditions are often extreme, at

sea, in cold environments and in deserts. Oil

and gas fields are often in deep water and ultra

deep water, as well as onshore in remote areas.

Emergency response facilities are usually put

in place for the safety of the crews. Reliability

and availability of VSAT equipment under such

circumstances is critical.

Global connectivityThe number of satellites for Ku-band and

C-band continues to increase each year. The

number of VSAT terminals in use continues to

grow, resulting in increased connectivity glob-

ally. New satellites are equipped with stronger

and more sensitive transponders, allowing for

smaller IP-based terminals.

The amount of data being transmitted

globally over VSAT rises each year. New

ways of utilizing the available bandwidth

more efficiently are introduced continu-

ally through more efficient ways of com-

pression and modulation like DVB-S2

and MPEG-4 as well as dynamic link

optimization. Bandwidth is often shared

for cost savings between larger groups of

users by using TDMA for example, iDirect and

mobility is often crucial.

Core applications The core application areas of

VSAT terminals are communica-

tions, crew morale, remote

collaboration and network ef-

ficiency. Communications are

data transmission for example,

voice, internet, fax and backhaul.

Crew morale includes calling to families

and friends, internet hot spots and IP TV.

Crew morale solutions are important for per-

sonnel retention in remote locations. Remote

collaboration is used for video conferencing,

remote video streaming and asset tracking.

Network efficiency is achieved by different

types of acceleration of traffic on the applica-

tion level, as well as web content filtering and

anti-virus programs.

Mobile VSAT solutionsSWE-DISH offers mobile SATCOM solutions

for the oil and gas industry for exploration in

remote locations. Today, the company is a global

leader in the production of highly portable and

transportable satellite communications solu-

tions. We pioneered the development of small

IP-based satellite terminals such as suitcase

systems, fly-away and drive-away (vehicle-

mounted) systems and other related solutions.

SWE-DISH also offers mobile telecommu-

nications solutions with satellite reach-back,

working jointly with Ericsson for ultra portable

cellular GSM and WCDMA networks. The net-

works can easily be deployed in remote areas

to be used for emergency response and oil and

gas exploration.

SWE-DISH specializes in reliable, highly

mobile satellite terminals and solutions with

antenna sizes of 1.5 meters and below, with

compact, easy-to-use and quick-to-air for live

transmission of video, data, internet and voice

content from any location in the world.

IPT SuitcaseThe SWE-DISH IPT Suitcase is the world’s

most compact and quickest-to-air satellite

terminal. The Suitcase, with its one-person op-

eration and exceptional technical performance,

allows live broadband transmission from virtu-

ally anywhere in the world. The Suitcase is used

for everything from ordinary satellite news

gathering (SNG) to IP-over-satellite.

The SWE-DISH Suitcase is one of very few

antenna systems of its size and type to have an

Intelsat type approval. A type approval ensures

that the equipment meets Intelsat operating

performance requirements, and that all units of

the model perform in a similar manner. n

Magnus Wallmark is the Director of

Business Development at SWE-DISH

Satellite Systems. Prior to this role

at SWE-DISH, Wallmark worked as

Director of National Security Networks

at Ericsson Microwave Systems AB.

Wallmark has prior experience from

working in leading roles within project

management, product management

and business development at several

Ericsson companies.

Magnus Wallmark, explains how connectivity and communications are changing as bandwidth improves.

Global communications on the rise

ASK THE EXPERT

“The number of satellites for Ku-band and C-band continues

to increase each year. The number of VSAT terminals in use continues to grow, resulting in

increased connectivity globally”

SWE-DISH IPT Suitcase

SWE-DISH.indd 120 9/12/08 15:22:43

Swedish.indd 121 9/12/08 11:04:54


(VoIP), public and municipal Wi-Fi access,

or any wireless networks for video, voice

and data. It is this inherent ability to remain

stable in harsh conditions that has put

radio, and, more specifically spread spec-

trum radios at the forefront of the wireless

data communications.

Field-testedThe challenges of communication that

must be met within the oil and gas industry

are both difficult and distinct. Wired solu-

tions are often impractical due to the high

cost of installation and difficulties with

terrain. This is where wireless mesh tech-

nology rises to the challenge and delivers

reliability, flexibility and cost effectiveness.

With the use of high-speed broadband it

is now possible to monitor even the most

remote areas, 24/7. This technology can be

employed to prevent or contain potentially

catastrophic events, such as fires and oil

spills. Wireless networks, also allow super-

visors to communicate with workers in the

field with ease. They can contact each other

via VoIP without concerns of interference,

interruptions or security.

Long-term gainOverall, in these times of economic un-

certainty it is natural to progress towards

solid and steadfast investments. In the end,

it all comes down to results. Wireless broad-

band has proven itself as a reliable and

efficient means of communication for proj-

ects of any scale. The bar has been raised;

advancements in broadband mesh network

technology, its cost effectiveness, ease of

installation and rapid deployment support

the growing momentum of this media in the

oil and gas industry. n

Cynthia Ramdial has recently joined the ENCOM team as the Marketing Co-ordinator.

network can still operate even when a node

or a connection goes down. As a result, an

extremely reliable network is formed.

Potential benefitsWireless mesh networks and broad-

band wireless technologies have recently

become attractive to both municipal gov-

ernments and the private sector due to

their cost effectiveness, ease of installa-

tion and rapid deployment. They allow the

industry to do more with less by using their

current static infrastructure and extending

it to a flexible, connected environment.

Advancements in wireless technology have

established its reputation as an extremely

secure, reliable and flexible form of com-

munication. It is highly effective for rugged

data transmission applications and has per-

formed consistently without compromising

throughput. Wireless broadband solutions

are ideal for long distance bridging, high

performance point-to-multipoint links and

mesh networking. These systems can be

used in an array of applications, such as

video surveillance, controller interconnect,

broadband internet access, voice-over-IP

Current economic, political and en-

vironmental factors are motivating

North American governments and

private industry to undergo a phase of re-

structuring. The challenges of constraints

on time and budget weigh in heavily as they

choose how to best utilize existing infra-

structure while maintaining an acceptable

level of service. It requires innovative think-

ing and extensive planning. The introduction

of wireless mesh networks and broadband

wireless technologies is revolutionizing how

information is being delivered and saving

money at the same time.

Mesh networkMesh networking is a particular way of

routing between nodes; it allows for continu-

ous connections and reconfiguration around

broken or blocked paths by ‘hopping’ from

one node to another to create a fully con-

nected network. Mesh networks differ from

other networks in that the component parts

can all connect to each other via multiple

hops. One of the most important character-

istics of these kinds of networks is the fact

that mesh networks are self-healing: the

Cynthia Ramdial explains how mesh networking could transform how information is being delivered.

Stretching your dollar

“With the use of high-speed broadband it is now possible to monitor even the most

remote areas, 24/7”

Encom Ed P122.indd 122 11/12/08 11:52:24

Advancements in Wireless Broadband technology allow even the most remote area to be monitored 24/7 without interference or interruption. Let us take you to the forefront of innovation!

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WELL-HEAD AND PUMP MONITORING SYSTEM

CATHODIC PROTECTION SYSTEM MONITORING

LEAK DETECTION MONITORING

UNDERGROUND GAS STORAGE MONITORING

PUMP/COMPRESSOR STATION MONITORING SYSTEMS

full page ads2.indd 123 9/12/08 11:05:22


operation’s wells, all of the time. PU enables improved well surveil-

lance, more accurate hydrocarbon accounting, automatic production

reporting and production optimization. It safeguards the technical

integrity of wells and reservoirs (for example, it provides early detec-

tion and control of gas or water breakout). And it is cost-effective in

that it requires minimal commodity instrumentation and IT systems,

much of which may already be present in field operations. In some

respects, the technology provides such a step change that success-

ful PU deployment often requires changing the way one operates and

motivating the people involved.

How does it work?PU uses dynamic data-driven models of the production system.

The well models estimate water, oil and gas production flows in real-

time, primarily from existing well instrumentation. Effects such as

backing-out of weaker producers at headers are captured in these

models. Physical models are not used – no well tubing diameters,

no roughness, no fluid properties, no near well bore ‘skins’, and no

pre-assumed multiphase flow correlations. Real-time well measure-

With the vast majority of industry wells lacking a

continuous, reliable measure of well/reservoir per-

formance, a key issue in upstream E&P operations is

how to manage wells and reservoirs more effectively.

Yet, if we cannot measure continuously, how can we

manage better? How do we monitor well and reservoir performance?

How do we perform hydrocarbon accounting? How do we report pro-

duction for our wells?

The industry has traditionally used discontinuous well testing to

determine well performance, as wells are tested once per month and

it is assumed that for the other 29 days the wells produce the same.

Mother Nature, however, is usually not that predictable. Also, the

quality and accuracy of well tests are often unsatisfactory, so some

tests are rejected and have to be repeated. At the heart of this conun-

drum is multi-phase flow. Almost no wells deliver a clean, measurable,

single-phase stream, and it is impractical to install multi-phase flow

meters or test separators on all wells.

Shell’s FieldWare Production Universe (PU) is a software applica-

tion that continuously estimates oil, gas and water flows for all of an

Continuously knowing what a company’s wells and reservoirs are producing facilitates improved asset management and integrity, argues Shell’s Ron Cramer.

Producing smart fields, now

Ron Cramer Ed P124,125,126,128.indd 124 9/12/08 15:13:36


ments are related to volumetric fl ows from test separators. The

data-driven approach has been proven to be robust, usable and

sustainable in the oil and gas production environment.

A key aspect is the Deliberately Disturbed Well Test (DDWT),

which is used to characterize well performance. These tests go

beyond traditional production well testing. The objective is to relate

well production (oil, gas, water) to simultaneously measured well pa-

rameters, such as fl owing tubing head pressure, gas-lift rate, etc. The

emphasis is on capturing the response of the well to step changes in

controllable parameters.

Once created, the individual well models are used to compute the

well production per stream. PU accumulates daily fl ow per well, which

refl ects the actual producing conditions, including trips and restarts

and plant operating mode changes.

A simplifi ed abstract topography is constructed relating wells to

a calibration point. Typically, the calibration point is a bulk separator

continuously providing oil, water and gas measurements from wells in

a given production system.

PU production data per well are compared and reconciled auto-

matically against the installation’s overall export meter. This provides

a reconciliation factor for each produced/injected stream on a con-

tinuous basis for the current day and the last 24 hours. Also in this

graphical user interface is a diagnostics panel that alerts the user to

production systems events. Event detection can be single point mea-

surements or a complex logical mask to detect a specifi c event (for

instance, contamination of the water disposal stream with oil). There

is also an information panel, which alerts defective instruments and

communications infrastructure.

With this single screen, an asset manager can gauge the current

health of the production systems. If all the reconciliation factors

are within acceptable bounds, then the production system is under

control. If this is not the case, it is possible to drill down to process,

header and well-level.

The output from the measurements on the bulk separator provide

a 24/7 data stream at one-minute or more frequent intervals. PU uses

the dynamic variation seen at the calibration point to further tune its

well models. Plant trips and restarts are very visible and generate a lot

of useful data, especially when the fi eld is brought back online. The

dynamic well models are updated every 24 hours to refl ect the total

information available in the preceding period, allowing tracking of

decline in well rate and increase in gas oil ratio (GOR) and water cut.

PU thrives on dynamics (for example, well bean up/bean down) to

continuously update individual well models. Normal E&P operations

provide a dynamic environment with well interventions, process trips,

etc. If assets exhibit stable production with minimal dynamics, then

Operating Unit 1PU was initially installed in June 2002. The

objectives of the implementation were to test the

technology in an operational environment and to

document business benefi ts.

The fi eld consists of 15 wells producing from three

reservoirs. The three reservoirs consist of a mixture of

free fl owing, gas lifted and dual completion wells. The

fi eld is well operated, instrumented and maintained with

more than 99 percent availability. Production data stem

from the local DCS system.

Field operational strategy is to maximize oil

production within the constraints of the gas export to

the local domestic gas company, which is achieved

by operating wells with low gas oil ratio (GOR). A

key requirement to achieve this strategy is knowing

the relative composition of well outputs. Before PU

implementation, wells were tested monthly and the test

results used for the following month’s optimization,

along with other calculations, such as deferment

values. Well GOR changes frequently and PU quantifi es

these changes as they happen, facilitating continuous

optimization, whereas prior to PU implementation they

were operating ‘blind’.

Formal PU post implementation reviews (PIR) have been conducted in three Shell OUs.

SHELL EXPERIENCES

WITH PU

“The technology provides such a step change that successful PU deployment often requires changing the way one operates and

motivating the people involved”

Continued on page 126



Following PU implementation, the annual decline

in production rate has decreased from approximately

20 percent to seven percent, and large monthly swings

in oil production have been reduced, increasing the

confidence with which production forecasts can be

made. Total deferment has also been reduced by 2.2

percent. Production has increased by approximately

30 percent when compared to forecasts made before

the introduction of PU. Other benefits include:

dynamics can be introduced. Wells can be beaned up/down for short

periods to cause transients to ripple through the process. Single or

multiple disturbances can be introduced simultaneously. These

pseudo-tests are known as Deliberately Disturbed Production Tests

(DDPTs). If these tests are insufficient to re-align the models, then PU

initiates a full DDWT.

PU is currently running on more than 1500 wells in 14 Shell oper-

ating units (OU) and affiliates, covering about 35 percent of Shell’s

global production.

What’s coming down the PU pipe?Real-time estimates of oil, gas and water flows for all wells is

valuable for surveillance purposes. A logical next step is to

use that information for real-time optimization of res-

ervoir, wells and the production process. PU-based

real-time optimization has been piloted for gas-

lift optimization and is being developed for

beam pumps.

For example, PU Real-Time Optimization

(PU RTO) is currently operational on an off-

shore gas lifted platform. It incorporates the

basic PU functionality extended to include

an optimization algorithm for adjusting lift

gas injected to each well for maximum pro-

duction using minimal lift gas. PU RTO continu-

ously computes optimal set points based on an

inbuilt model and estimates of the amount of oil,

gas and water that each well is producing; set points are

automatically transmitted to the well gas-lift injection valves

via the platform control system. The system controls eight wells to

optimize the overall gross production.

• Reduced well testing. The test separator was

unusable for 15 months, and PU was the

only method available for well surveillance.

• A marked increase in the stability of monthly

oil production – 50 percent reduction in

monthly standard deviation of values.

• Despite a 15 percent reduction in gas

exports, oil production has met or exceeded

targets since introduction of PU.

• More accurate testing of dual completed gas

lifted wells.

• Instantaneous detection of process events.

PU surveillance has enabled a number of

events, such as water leaking into an export

stream, to be quickly detected and remedial

action taken.

• Operation with 50 percent reduction in

staff levels. PU enabled the production

programmer to continue production system

optimization with increased overall workload

from other fields whilst reducing staff levels.

Ron Cramer

Continued on page 128


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The PU optimization was installed some two years after the basic

surveillance module, which had already demonstrated signifi cant

surveillance/optimization gains (production gain of 370m3/day, in-

creased well potential of 600-900m3/d and 20 percent reduction in

utilization of platform lift gas).

The subsequent PU RTO deployment has stabilized gas lifted pro-

duction for this fi eld. Individual wells have been optimized effectively

and PU RTO has demonstrated its ability to rapidly detect dead wells

subsequent to a well or platform trip (re-instating 670m3/d potential).

It also has been demonstrated that sub-optimal lift settings can de-

crease gross production by more than 10 percent.

The new system allowed header interaction effects on well pro-

duction to be quantifi ed. After experiments were completed, a new

production line was installed in June 2004. Installation of this line pro-

vided a gain of 11 percent in platform gross production, and also gen-

erated a number of non-quantifi able benefi ts. For instance, changes in

well performance are noticed quickly and countermeasures initiated.

PU automatically notifi es staff of well performance and of signifi cant

changes via email. In addition, since PU installation the performance

of wells and instrumentation is highly transparent and the level of at-

tention given to the facility has much increased. Unscheduled defer-

ment due to process problems is now signifi cantly lower as compared

to other similar platforms in the operating unit.

As a result, PU is now being rolled-out across all Shell upstream

assets. Each candidate fi eld is assessed carefully in a readiness check

to identify what repairs are required to existing instrumentation and,

if required, where additional instruments need to be added before

installation will start.

ConclusionsPU is well established in multiple Shell OUs, suffi cient to establish

signifi cant benefi ts for more than 30 projects completed to-date: a

fi ve-20 percent increase in production due to improved surveillance

and optimization; up to fi ve percent reduced operating costs due to

optimization (for example, reduced gas-lift gas and logistics savings

due to reduced travel to the wells); and safer operations due to re-

duced operator exposure to hazard.

Shell’s challenge now is to scale up these benefi ts to full global

brown-fi eld and green-fi eld operations and to transform the tradition-

al manual operations culture into a new ‘Smart Fields’ way of working

based on remote surveillance and control. Good progress is being

made along this road, with some 60 projects in global assets planned

over the next two years.

Ron Cramer works in the area of oil fi eld automation and production systems and is a Senior Advisor for Advanced Production Management with Shell Global Solutions in Houston. He has 30 years’ experience with Shell International E&P in upstream oil fi eld operations and production systems.

Operating Unit 2PU was implemented in February 2005. PIR fi ndings

indicate a three-fi ve percent production gain due to

real-time production surveillance due to faster well-fault

identifi cation/correction. Other benefi ts include:

The PIR team concluded that a sustainable

installation of FieldWare PU has been achieved in the

Operating Unit and recommended implementation of

the PU Real-Time Optimization Module.

Operating Unit 3The PIR covered readiness check, implementation

and initial operation of PU on a fi eld producing 7000 boe/

day with 10 electrical submersible pumps. Following

readiness checks, the PU implementation project started

in January 2005. The following was concluded:

• Opex benefi t of $750,000 per year (one boat

and two less positions).

• FieldWare PU has reduced the need for intra-

fi eld travel and thus reduced HSE exposure.

• Minimizing of hidden deferment – more

accurate deferment reporting. In the fi rst two

months of 2005, a total of 14,000 bbl were

reallocated (0.5 percent).

• Reduction of well-test frequency due to PU

calibration/maintenance to a level whereby

decline behavior can be modeled within PU.

• Improved surface process surveillance – PU

fl agged unstable station operation due to

process control instability.

• The daily deferment volumes automatically

calculated by PU are more accurate – 30 percent

differences in deferment reporting were noted.

• PU can help unlock hidden deferment using

accurate real-time rates for well oil, gas and

water fl ows.

• PU has fl agged multi-phase fl ow-meter

calibration problems.

• PU is effective for real-time monitoring, as it

provides timely information to those who need

to know.

• Above benefi ts have led to a decision to roll

out FieldWare PU to all Shell assets over the

next three years.

“Shell’s challenge now is to scale up these benefi ts to full global brown-fi eld and green-fi eld operations and to transform the traditional manual operations culture into a new ‘Smart Fields’ way of working”


CGG2.indd 129 9/12/08 11:05:56


Improvements in wireless products are quickly changing the

design of automation at oil and gas production locations.

Free from the distance limitations of cable and with increas-

ingly sophisticated processing and control capabilities,

recent installations demonstrate the long distance capability

and complexity of wireless automation.

OleumTech Corporation, based in Irvine, California, one of the

early entrants into wireless automation, has accomplished this im-

proved capability through its new WIO line of products. Since the

company’s inception in 2002, the industry and OleumTech’s prod-

uct line has steadily progressed from simple single well location

monitoring to more complex monitoring and control applications to

today’s long distance, multi-well control applications. An example

of the capabilities of current wireless tech-

nology is demonstrated in a recent Barnett

Shale application located near Fort Worth,

Texas.

The subject location included a central

location with five-meter runs for gas flow

measurement and an associated RTU for

flow calculations. The RTU serves as the

master or control device for the application.

OleumTech’s WIO Base Unit is integrated

with the RTU via serial communication at the

central location and manages the wireless

end devices and control operations.

Located 500 feet from the RTU is a central tank battery that

serves five wells in proximity to the central location. Well #5 is lo-

cated a quarter of a mile, well #2 and well #4 are located half a mile,

well #3 five miles and well #1 10 miles from the Base Unit.

Wireless devices utilized in the installation include the afore-

mentioned WIO Base Unit, which manages the wireless devices and

provides a link to the RTU and the host SCADA system via RS232.

The Base Unit also accepts commands from the RTU utilized in the

plunger lift optimization of each well. Each of the 10 tanks is moni-

tored by float type digital tank measurement device. Power and

communications to each tank measurement device is provided by

an OleumTech WIO LevelMate Monitor. The LevelMate Monitor is a

CSA and FM approved, self-contained product that provides power

and communications without an external power source, thus elimi-

nating the need for cable or solar panels to recharge batteries. At

each of the five well locations, a Base Unit is utilized to manage

local plunger lift control. These units provide valve control at each

location and monitor chemical injection.

The system functions in the following manner. At the tanks,

the LevelMate Monitors ‘wake up’ every 15 minutes and power up

the probe for the interval required to obtain a stabilized reading.

This method of operation conserves power and allows a typical

battery life of three to f ive years. Data is then communicated via

radio to the Base Unit and is available to the control unit and

SCADA System. Should a high tank level or other alarm occur,

the well can be shut down via the Base Unit thus preventing a

spill. Each well is equipped with a Base Unit to manage plunger

lif t control. The WIO Base Unit utilizes external power provided

at the location due to the frequency that pressure data is read

and transmitted. Functions performed at the well include reading

pressure data every second, performing valve control in accor-

dance with the plunger lif t optimization program, detecting the

plunger lif t arrival sensor and monitoring the chemical injection

tank located at the well.

This installation provides a great example of the increasing ca-

pabilities and complexity of wireless field monitoring and control.

Such installations maximize utilization of high-powered flow com-

puters and RTUs while increasing operating efficiency and safety

at the locations.

ASK THE EXPERT

Expanding the limits of wireless field automationPaul Gregory, Chairman and CFO of OleumTech Corporation, reveals how wireless fi eld automation can improve effi ciency and safety on location.

“With increasingly sophisticated processing and control capabilities, recent installations demonstrate the long distance capability and complexity ofwireless automation”

OleumTechATE.indd 130 9/12/08 15:13:17

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CATALOGUE PAGE NGO&G:dec08 09/12/2008 16:20 Page 131


AWAKENINGCRUDE

AWAKENINGCRUDE

AWAKENING

Iraq Ed P132-137.indd 132 9/12/08 15:12:17


and billions of barrels of proven reserves beneath Iraq’s dusty sur-

face, you can just imagine the dollar signs fl ashing before the eyes of

Big Oil bosses. Even the offi cial 115 billion barrel fi gure looks wildly

short of Iraq’s true potential; it hasn’t been updated since 2001, and is

largely based on 2D seismic surveys from almost three decades ago.

And with huge chunks of the country still unexplored, opinions

remain divided on how many barrels of proven black gold exist.

Indeed, vast swathes of the western desert region have never even

seen a drill bit. To add to the conjecture, Iraq’s deputy prime minister,

Barham Salih, was quoted in April as claiming that reserves could be

After decades of sanctions, sabotage and chronic mismanagement, Iraq – with perhaps the

largest unexploited oil reserves in the world beneath its desert sands – could fi nally be waking

from its slumber, as investment and technical expertise comes fl ooding in from the international

energy giants. Could this be the dawn of a new era of production? Julian Rogers investigates.

It’s been 36 years since their unceremonious expulsion, but

fi nally, international oil companies are back in Iraq. Through

three wars, more than a decade of isolation and a fi ve-year,

US-led invasion, the IOCs have had their noses pressed against

the glass looking in like a bunch of kids salivating over a shop

full of sugary sweets. They could look but they couldn’t touch

– until now.

The security situation, although still a major worry, has improved

in recent months and there seems to be no shortage of companies

looking for a piece of the action. With rock-bottom extraction costs

Iraq Ed P132-137.indd 133 9/12/08 15:12:34


as high as 350 billion barrels, tripling previous estimates and put-

ting the country way ahead of Saudi Arabia. Salih said the optimistic

forecast came from ‘reputable sources’ after seismic surveying and

exploration drilling.

Unsurprisingly, Dr Hussain al-Shahristani, Iraq’s oil minister,

has since tried to distance himself from these remarks. It was the

same during O&G’s recent unscheduled meeting with the softy-

spoken al-Shahristani inside Baghdad’s imposing Ministry of Oil

building. “The statement is not accurate,” he responds fi rmly in

perfect English but with a hint of frustration in his voice. You get the

impression that he has been fi elded this question more than once

in the past few months. “It is not industry practice to add probable

to proven reserves, which is perhaps the source for the fi gure you

mention.” However, the 68-year-old former nuclear scientist does

concede that through recent studies and the application of new

technologies, many of the discovered producing and non-producing

fi elds had seen reserves “upgraded measurably.” He adds: “We are

conducting an integration study to come up with the new proven

reserves fi gure within the next few months consistent with this ex-

ercise of re-evaluation.”

Output projections Iraq’s oil industry, which has been nationalized since 1972, cur-

rently pumps 2.5 million barrels of oil a day (bpd) – two million of

which are exported. This is the highest level since the Saddam-era

prior to March 2003. Nevertheless, the immediate goal is to raise this

to 2.8 million barrels by the end of the year, al-Shahristani explains

confi dently. “Our plan to increase levels is going to include tying new

wells to production facilities and optimizing completions of others, as

well as bringing some incremental initial production from some dis-

covered but not yet fully producing fi elds. However, the main thrust

would be to arrest the decline and get the increments from our pro-

ducing giant and super giant fi elds in the south and north.” He states

that any surplus production will be sent for export.

Unsurprisingly, there are those

vehemently against the oil giants

plundering Iraq’s resources, accusing

the IOCs as being nothing more than

a pack of vultures circling a stricken

animal. The American majors being

involved in the no-bid TSCs has only

added fuel to fi re with anti-war critics

arguing that oil was the main reason

the US invaded Iraq. Last year, Alan

Greenspan, the former chairman of

the Federal Reserve, said the war

was ‘largely about oil.’ Back in 2003,

Defence Secretary Donald Rumsfeld

famously dismissed similar accusations

as ‘utter nonsense’ but this did little to

dispel concerns. Oil workers’ unions

and nationalist parliamentarians

feel that Iraq should pay for the

re-development of the industry, not

the IOCs through PSAs. They want

the foreigners to be employed as

contractors and paid a fee for their

services and expertise. Hassan Juma’a,

President of the Iraqi Federation of Oil

Unions, has stated that if contracts

last 30 or 40 years IOCs could make

more money than the government.

Al-Shahristani rebuffs these fears

and says the deals will be on terms

benefi cial to Iraq. For ordinary Iraqis

the main priority is getting essential

services back up and running, not lining

the pockets of the energy giants. You

only have to look around Baghdad on

any given day to see queues of vehicles

snaking around the streets from the

gas stations. For all its tremendous oil

wealth, the country still can’t supply

enough to its people. With this situation

it is little wonder that hostility exists

over the involvement of the IOCs.

CRITICS TELL BIG OIL TO STAY AWAY

The oil minister holds the key to energy supplies as

booming economies like China and India increasingly

look to foreign producers.

Iraq Ed P132-137.indd 134 9/12/08 15:12:38

135www.ngoilgas.com

delay were to last longer, things could still be processed under

the prevailing oil and gas law in the short-term.” So is there a date?

The question falls on deaf ears.

The lack of a new law hasn’t stopped around 20 foreign energy

firms from Canada, Norway, US, Turkey and a handful from Asia from

setting up operations in the northern Kurdish region, thought to hold

as much as 40 percent of the country’s reserves. In fact, Iraqi Kurdistan

could have more hydrocarbons than Nigeria. The Kurdish Regional Gov-

ernment in Irbil say the PSAs the companies have signed are legal but

the Iraqi government states that the contracts are invalid and the IOCs

should leave. Those companies that have shied away from entering

have done so out of fear that Baghdad could later annul contracts. The

Kurds have accused the Iraqi government of “former regime tactics”

but an unrepentant al-Shahristani says the oil is the property of the

Iraqi people and should be left alone. There have also been threats to

blacklist any companies agreeing to oil concessions with the Kurds.

Bringing in the moneyIn an attempt to kick start the process of reintroducing much-

needed overseas expertise to the ailing sector, October saw the Iraqi

Oil Ministry open the first round of oil and gas licensing since the 2003

invasion. At the Sheraton Park Lane hotel in London, al-Shahristani met

executives from 35 pre-approved foreign companies, including Chev-

ron, ExxonMobil, Shell, BP and Total, to discuss deals to develop

But output won’t plateau out at 2.8 million bpd; the Ministry of

Oil plans to ramp up production to 4.5 million bpd by 2013. In 10 years

time, levels could top six million bpd. “In the short-term up to 2010,

we envisage taking production to 3-3.5 million bpd through national

effort and technical service contracts (TSCs) with the IOCs,” states

al-Shahristani. “Some 500,000 barrels will come from this source.”

The oil minister is all too aware that a crippled country like Iraq

cannot achieve these targets without the technical expertise and

knowledge of the IOCs. One energy expert described Iraq to O&G as

being “light years behind on a technological level.” The country also

has to fill the gap in the ‘brain drain’ as blue and white-collar oil work-

ers have either fled abroad or been killed since 2003. On top of this,

many oil facilities are either dilapidated, looted or war-damaged; a

great deal of what is operational dates back to the sixties and seven-

ties. “It seems that Iraq has hit a ceiling as to what it can do with the

in-house resources,” says Samuel Ciszuk, Chief Middle East Analyst

for Global Insights. “It needs help from technicians and foreign com-

panies, as an inflow of foreign cash.”

Although the IOCs are clambering to get in, they are naturally

panicky about committing investment and manpower to a country

that still doesn’t have a concrete hydrocarbon law in place that will

govern the industry. The draft law was agreed by the cabinet in Febru-

ary last year but parliament has failed to rubber stamp the legislation

because the government and Kurdish Regional Government (KRG)

in the semi-autonomous north have been at loggerheads over who

will control reserves and contracts. Even after two-and-a-half years

of political squabbling, there is still no date as to when this piece of

landmark legislation will finally be ratified.

“The oil minister has been promising that it will happen before

the end of the month for about 18 months,” argues Ciszuk. “Without

it, getting anything underway will be very hard.” Iraq’s old oil law still

bans private participation in the country’s oil business. The new one

would authorize production-sharing agreements (PSAs) that would

guarantee a profit for the IOCs. It would also allow provinces freedom

from central government to award contracts. Since 2004, around 40

foreign firms have been assisting the Ministry of Oil free-of-charge

through memorandums of understanding.

So how much longer do we have to wait for the new law? Al-Shah-

ristani smiles before divulging his carefully composed response. “We

have always advocated the importance and necessity to enact the

new oil and gas law as quickly as possible because we are confident

that it would properly organize and facilitate the work in the oil sector.

However, the delay in promulgation is a political matter to be finally

resolved by parliament and the composing political spectrum. If this

“We have inherited a situation that was subject to 10 years of international embargo and gross internal mismanagement, not to mention several wars” – Dr Hussain al-Shahristani

Iraq Ed P132-137.indd 135 9/12/08 15:12:41


the country’s six largest oil fi elds – Kirkuk, Bai Hassan, West Qurna,

Zubair, the Maysan fi elds (Bazargan, Abu Gharab and Fakka) and South

Rumaila. Two gas fi elds – Akkas and Mansuriyah – are also included.

Under the terms of the proposed 20-year contracts, state-owned

companies will have a 51 percent stake in the entities operating the

fi elds and foreign companies would hold 49 percent. In return for com-

mitting to spend money on rehabilitating infrastructure, drilling wells

and reassessing recoverable reserves in each fi eld – something that

is long overdue – foreign fi rms would recover their costs and earn ad-

ditional revenue from any oil produced above current output levels at

the fi elds – and could choose whether to be paid in oil or cash.

Oil companies have traditionally steered clear of such service con-

tracts, preferring deals that give them equity in the oil in the ground as

this allows them to book reserves. But the majors have been squeezed

out of so many oil-producing regions – such as Venezuela, Russia

and the Middle East – that they can’t afford

to turn up their noses at the conditions al-

Shahristani is offering; the overseas fi rms

need Iraq’s oil.

Likewise, Iraq needs the overseas fi rms. “We see their [the IOCs]

complementary role as important for the future,” al-Shahristani

explains in between a quick sip of still water. “The participation of

the international oil industry will complement our national effort

to reaching our new production objectives through providing new

investment and new technology. Starting in 2010, we foresee the

implementation of Investment Service Contracts through licensing

rounds with the IOCs to redevelop, improve and enhance oil recovery

mainly from the same giant and super giant fi elds (those fi elds with

over fi ve billion barrels of reserves), and perhaps the development

of a limited number of discovered but not yet developed fi elds.”

Those companies in the running for contracts will be mindful of

the fact that Russian oil giant LUKOIL signed a deal with Saddam Hus-

sein back in the nineties that went sour. The contract, to develop the

super giant fi eld West Qurna, was subsequently cancelled and left in

legal limbo before fi nally being torn up last year. Cuszak says the IOCs

will need confi dence in the contracts that they sign – not easy, given

the continued procrastination over the passing of the hydrocarbon

law, which still has the potential to derail any existing agreements

if ratifi ed. “There needs to be some kind of political stability so that

companies can trust that the law that is there will remain for the fore-

seeable future. If it remains a politicized environment like Iran, where

parliament can go in and pick a single contract to pieces, then it will

be extremely diffi cult.”

Petroleum consultant Tariq Shafi q was co-author of the draft

petroleum law two years ago along with two other ‘technocrats’.

Together, the trio have 120 years’ experience in the energy industry

of Iraq and the Middle East. During a recent meeting with O&G over

lunch in London, Shafi q expressed his disappointment at the current

situation. “It is a stalemate,” he claims. “Without improvement, there

is little hope of a solution in the future.”

Shafi q, who is a former executive director of the Iraqi National

Oil Company, says his fi rst draft put an emphasis on revitalizing the

ageing and damaged infrastructure in order to boost production

levels, not new E&P efforts. “The proven reserves can raise today’s

production of 2.5 million bpd to 10 million bpd and maintain it for de-

cades at high levels without the need for one

barrel of new oil. Investment and discovery by

the regions or provinces, besides being un-

justifi ed investment, would lead to unhealthy

consequences among the haves and have nots

and on account of lack of infrastructures.”

The security situationAs well as the wrangling over the legislative framework, the gov-

ernment is all too aware of the need to continue to focus on security

in order to protect oil workers, plants and pipelines. For the past fi ve

years, Iraq has been synonymous with sectarian violence and killings

and although the situation is improving, it’s still an extremely dan-

gerous place to do business. The government has been protecting oil

workers and energy facilities with gun-toting guards and lofty walls,

while the coalition forces have played their part too. It is expected

$70 billionpredicted Iraq oil revenue for 2008

90% of the Iraqi government’s budget

comes from oil

80% of production comes from fi elds in the Kurdish north and Shia south

“Iraq has a huge potential but it cannot be seen as anything but the region’s wildcard right now” – Samuel Ciszuk

Did you know?The world’s oil majors fi rst started drilling in Iraq back

in 1925 when they held a stake in Iraq Petroleum

Company, which had a stranglehold on the country’s

reserves until 1961. In 1972 Saddam Hussein oversaw

the seizure of international interests and the foreign

players were thrown out.

Iraq Ed P132-137.indd 136 9/12/08 15:12:51

137www.ngoilgas.com

pany to focus on developing oilfields there. Increased capacity and

rebuilt infrastructure cannot come soon enough for the minister. “We

recognize the need to reconstruct and renovate all aspects of our

industry to ramp up production and rehabilitate and renew plants,

installations and management practice, as well as make a quantum

leap forward in the training and development of Iraqi oil personnel.

These we are hoping to achieve in co-operation with the international

oil industry in a measured and balanced manner to avoid

implosion and chaotic expansion.”

Bright outlook Once the foreign firms finally arrive, full-scale pro-

duction won’t begin overnight as extensive seismic sur-

veying and analysis will have to take place. For instance,

even though the country has 80 discovered oilfields,

there are around 400 structural anomalies waiting to be

explored. As for natural gas, no one seems to have a clue

how much exists, although conservative estimates put

the total at 112 trillion cubic feet of reserves (cue those

dollar signs in the eyes again). Industry experts are pre-

dicting that if the country fulfils its true potential, earn-

ings could swell to somewhere between $200 and $300

billion a year.

When you consider that hydrocarbon revenues ac-

count for 90 percent of the government’s budget, it is easy

to see why the hopes for regeneration are being pinned

on black gold. For consumers, increasing Iraq’s oil would

ease global supply fears and would probably bring crude

prices down. For the time being, the country is an uncut

diamond – enormous potential but much work needs lies

ahead. “Iraq has a huge potential but it cannot be seen as anything

but the region’s wildcard right now,” suggests

Cuszak. “When looking at future production

there are so many question marks over

the political situation and the levels of violence. Iraq should be able to

double its production in the long run if everything goes well.”

He continues: “The country could overtake Iran as the world’s

second largest producer but it will take a time because of the sheer

size of the projects and the time it will take for the country to heal

properly.” That healing process is slowly underway – which cannot

come soon enough for Iraq’s citizens. “The Iraqi nation’s deep-routed

culture remains the only safeguard for the country’s return to normal-

ity,” Shafiq concludes. n

that those after contracts will be required to have a manned office in

the Iraqi capital during the bidding process and negotiations, which

will present a scary prospect for some.

Iraqi oil officials say the security situation is being kept under

control. “With improved security conditions in Iraq, the Ministry of

Oil has already been able to protect installations and pipelines, which

has allowed increased production and export,” al-Shahristani asserts.

“Therefore, the IOCs can evaluate

the matter more objectively now

and start getting involved, on the

ground, with us. We are co-oper-

ating extensively with the army

and police forces to provide the

secure conditions needed for their

work in the field under acceptable

conditions.” The minister also re-

ports that none of the bidding for-

eign firms see the security or the

stalled oil law as serious deterrent

to going into Iraq.

Another major headache that

the authorities have to address

is smuggling, with a conservative

estimate of 105,000 barrels worth

of oil stolen from pipelines every

day and sold on the black market.

Politicians may not be able to

agree on the petroleum law, but

they have given the green light

to an oil anti-smuggling bill. The

crackdown will mean those caught facing punishments ranging from

fines to imprisonment.

So is security and smuggling the key issues that the Ministy of Oil

faces today? Al-Shahristani leans forward in his chair to emphasize

his point. “The main challenges for the Ministry of

Oil now are the security threats, which have been

reduced measurably in recent weeks, as well as

the need to optimize reservoir management, sur-

face installations and de-bottlenecking.” The oil

chief is also quick to point out that repairing an

industry brought to its knees by the old regime

will take time. “We have inherited a situation that

was subject to 10 years of international embargo

and gross internal mismanagement, not to mention

several wars that affected the oil centers directly. Since April 2003, we

have relied almost entirely on our own efforts to bring back produc-

tion now to 2.5 million bpd and exports to two million.”

The Iraqi cabinet has given the green light to a fourth state-run oil

business 200 miles south east of Baghdad in the province of Maysan.

The new company will be created by reorganizing the Maysan Oil and

Gas Commission after splitting it from the Basra-based Southern Oil

Company. Al-Shahristani has also pledged that each Iraqi province

producing at least 100,000 bpd would get its own state-run oil com-

“The Iraqi nation’s deep routed culture remains the only safeguard for the country’s return to normality” – Tariq Shafiq

Iraq Ed P132-137.indd 137 9/12/08 15:12:52


In today’s volatile and challenging

business environment, oil and gas

companies need leaders at every level

who can see what lies ahead, understand

the issues facing their organizations, and

initiate actions to meet the challenges.

This is a change from the past when it

was enough to train technical profes-

sionals to produce shareholder value as

well as oil and gas. But the leadership

game has changed. Listen to what a CEO

of a gas transmission company says she

now needs in her leaders.

“We believe that our 21st century

leaders must reflect strong ethics and

values, emotional intelligence and a

cohort approach. Good leaders need to

be able to embrace change, overcome

failures and foster a culture that dem-

onstrates they are vigilant in sustaining

growth, learning and embrace the right

course of action.”

Why is leadership development now

a CEO’s game, and why are they looking

for a new kind of leader? One reason

is the complexity and volatility of the

global marketplace. These forces drive

an expanded definition of leadership

throughout an organization. The world is

too complex and fast changing to accept

anything less than the ability to make

money, grow strategically and mobilize

and motivate a workforce at all levels.

The second reason is demographics.

Remember Y2K? Companies in the oil and

gas industry face a demographic crisis of

even greater proportions: the potential

retirement of up to 80 percent of skilled

oil and gas professionals in the next five

to 10 years. Call it ‘Gray 2K.’

focused learning for high-level execu-

tives through participation in an open

enrollment program. Over time, the

school and the company worked togeth-

er to adapt program content to changing

organizational needs.

And oil and gas firms should expect

a fifth thing from a business school: an

understanding of the industry that as-

sures relevance. Firms should not expect

business schools to teach experienced

managers the oil and gas business – they

know it better than most academics.

Rather, business school instruction

should enable experienced oil and gas

managers to apply cutting edge business

thinking to their industry.

It all adds up to a true educational

experience: one that is not solely about

business results but that challenges

assumptions, connects with fundamen-

tals and fosters openness to change.

Companies can expect this from to-

day’s leading business schools because

the best ones use relationship-based

and learner driven delivery models that

blur the line between formal training

and real life. They utilize tailored and

flexible teaching methods to promote

application of learning. And they bring a

sophisticated ability to assess the return

on investments of time and money in

leadership development.

As a result, oil and gas firms can

expect the best business schools to

provide them with an industry-oriented

resource to develop tomorrow’s leaders

today. n

Frank R. Lloyd is Associate Dean of Executive Education for the Cox School of Business at Southern Methodist University.

138Ask the expert The next generationFrank Lloyd explains how a relationship with a business school can help the oil and gas industry develop the next generation of leaders.

Through relationships with top busi-

ness schools, energy firms can develop

high-level leaders to meet the challenge

of the changing leadership game. For

example, a mid-sized exploration and

production firm that had grown through

acquisition and merger needed to in-

tegrate a management group that was

widely dispersed throughout the Ameri-

cas. They worked with a business school

to give the group a common business

language and leadership tools through a

set of programs tied to their succession

plan. They provided internal learning

opportunities for mid-level managers

through custom programs and externally

Why can oil and gas CEO’s and their

senior HR teams turn to business

schools to help them address critical

strategic problems in leadership

development? Oil and gas firms, like

any company, should expect four

things from a top business school:

• Broadresearch-basedcontent

that is true and tested

• Apurposebuiltlearning

environment that removes

managers from the pressures of

day-to-dayoperationstothink

and behave differently

• Professionaleducatorswho

build capability, not dependence

• Accesstoafulluniversitywhere

the right experts are available

regardless of discipline

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SMU.indd 92 9/12/08 11:00:36

140IN REVIEW

Chasing the RabbitHow Market Leaders Outdistance The Competition and How Great Companies Catch Up and Win, by Steven J. Spear

In this insightful book, Spear examines the internal operations of dominant organizations, includ-

ing Toyota, Alcoa and top-tier teaching hospitals. These are organizations that are operating in

vastly differing industries, but with one thing in common: the skillful management of complex in-

ternal systems that generate constant self-improvement at faster rates, longer durations and wider

breadths than anyone else.

O&G says: Chasing the Rabbit contains ideas that form the basis for continuous learning and

improvement in every aspect of our lives. It is an important book that will challenge and inspire

executives in all industries and help leaders generate better results using less capital, leaving

competition in the dust.

The more you strive to win at work, the more you have to sacrifi ce performance and satisfaction in

the other dimensions. Not according to Wharton professor Stewart Friedman. His Total Leadership

program has shown that success at work is actually enhanced if you embrace a fulfi lling personal

life too. Friedman explains leadership can – and must – be learned.

O&G says: Applying a new method of thinking, Friedman offers a completely different guidebook to

becoming a better leader. Total Leadership suggests both an innovative and sustainable model for

leadership that can benefi t every facet of life.

Total LeadershipBe a Better Leader, Have a Richer Life, by Stewart Friedman

In this fascinating, authoritative book, 150 of the world’s top chief executives share their advice for

getting to the top, and, once there, how to be a successful leader and still have a happy life. The

book reveals frank discussions with some of the West’s most infl uential CEOs and incorporates

radical and thought-provoking comments from the heads of new corporate champions of India,

leading companies in China and US corporate giants.

O&G says: The Secrets of CEOs contains a wealth of strategies that individuals and organizations

alike can use to encourage a new standard of leadership. It could well be an essential guidebook for

those wanting to know what its really like to be a CEO – and the health warning that should come

with the job.

The Secrets of CEOs150 Global Chief Executives Lift the Lid on Business, Life and Leadership, by Steve Tappin and Andrew Cave

Hot off the pressLeadership can make or break a business, particularly in a tough climate. O&G reviews the best of this quarter’s management books.


NGO&G_BookReview.indd 140 9/12/08 15:18:22

DresserRand.indd 141 9/12/08 11:06:26

The gloomy global recession has caused a sharp fall

in prices, sparking fears of cutbacks in E&P costs

and elevated financing costs. Benchmark oil process

have declined by almost two thirds since peaking

over $140 a barrel in July and natural gas has fallen

from around $12 per thousand cubic feet to about $5. So what

affects do these substantially lower prices have on drilling

projects and new technology? Well, while lower prices could

slow the most difficult drilling projects, it seems that energy

companies will continue spending on new technology, at least

in the short-term, but in the long-term it is a different story.

The combination of low oil prices and the current economic

crisis will begin to constrain exploration and new production

in the future as projects (and people) get dropped. Under a

rule-of-thumb, production costs for a new, marginal barrel is

at around $65 today, and it simply doesn’t make sense for oil

companies to throw millions of dollars at drilling new wells

when oil futures are selling for $50. Most recently Chistophe de

Margene, CEO of French oil giant Total, warned that many new

projects would be delayed at current oil prices.

The same is happening with natural gas. And with the long

lead times and high capital requirements that E&P projects

require, it means that there will be little new oil to replace what

we’ve used while prices slumped. Yet, as the credit crisis con-

tinues, it seems there is less of a way out of this vicious circle.

Banks remain reluctant to lend money and we all know energy

projects require a great deal of capital. Investment seems to

be focused on the short-term supply, when it should be focus-

ing on the inevitable long-term shortage. Investment is already

falling short of what is needed to ensure a future supply of

the expensive barrels that everyone will be counting on in the

coming decade.

Although I am loathe to admit it, we need to see oil prices

rise if we want to see projects and technology improve, and in

order to see advances in the energy industry overall. That said,

whether the oil and gas industry will ever manage to maintain a

steady – and fair – price for oil and gas remains to be seen. n

142 www.busmanagement.com

142OpiniOnThe E&P squeezeAs oil prices start to slip so do budgets, but will we see any long-term affect on the technological advances of the industry?

CutbacksThe most expensive barrels are found in the

tar sands of Alberta and costs have run up 50

percent this year, even as oil prices fell, resulting

in a double-squeeze for producers. Shell, Suncor,

Petro-Canada, Nexen, Teck Cominco, UTS Energy

and Opti Canada have all announced delays in

their planned investments in the region, resulting

in hundreds of billions of dollars of investment

withdrawn or delayed.

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There has been much talk about

the skills shortage in the oil

and gas industry and attracting

new talent has been challeng-

ing for a number of years now.

Dina Pyron, Partner in Ernst and Young’s

Human Capital practice, believes that

the problem is simple: the talent pool is

too small. “When commodity prices col-

lapsed in 1986, technical, professional

and field workers were forced to leave

the industry by the hundreds of thou-

sands,” she says. “When the recovery

came, workers didn’t return and weren’t

replaced with new talent. More devastat-

ingly, the industry was left with a serious

image problem.” And that image problem

remains today, as many young people

perceive the industry as staid and un-

moving. There is a widespread belief that

energy just isn’t as exciting or as high

tech as other fields. Generation X and

Y are attracted to diversity and change

and they just can’t see it in the energy

industry today. The number of students

studying petroleum engineering, or just

engineering in general is a quarter the

size it was in the early 1980s.

The trickle-down effect of the short-

age of skilled and qualified engineers

in the oil and gas industry has trans-

formed the talent issue into more than

an organizational challenge; it is now a

critical business issue. “The lack of key

talent could potentially impact corporate

growth, financial performance, safety

and reputation,” says Pyron.

Ernst & Young’s Strategic Business

Risk Oil and Gas 2008 report lists human

capital deficit as the number one busi-

ness risk facing oil and gas companies

today. Pyron believes that essentially,

without adequate staff, the ability of the

oil and gas services sector to expand and

meet future growth demand is question-

able. “Project delays and abandonment are

as much a result of capacity constraints as

financial calculations. And this risk is closely

linked with the inability to control costs – it

becomes much harder to control costs effec-

tively if all the experienced staff retire while

your company takes on more and more

large projects.”

Over the next five years, the gap

between new graduates and experts leav-

ing the industry is estimated at almost

500,000, which could have a devastating

affect on the industry as we know it. Pyron

believes that it is vital to look beyond the

baby boomers and focus on recruiting and

retention strategies designed for the next

generation, getting them involved in to-

day’s oil and gas industry. “Firstly, recruit-

ment needs to happen in bulk; we need to

expand and diversify recruiting methods.

Providing training programs for a variety

of areas can improve and diversify a com-

pany’s talent pool,” explains Pyron.

Secondly, she suggests customizing

culturally appropriate approaches. She

cites 76 percent of HR executives who

believe retention issues vary around the

world for their company. “Oil and gas is a

global industry with a global workforce,

and a one-size-fits-all approach does

not work.”

Pyron also suggests leveraging

retiring workers’ knowledge. “One im-

portant tool that is often underutilized

is mentoring. Mentoring helps young

employees navigate through the diffi-

cult waters of a new job and, at the same

time, ensures knowledge transfer to the

next generation.”

Ultimately, Pyron believes that the

oil and gas industry has reached a point

where certain oil and gas companies

have a chance to lead in addressing

workforce challenges. “Those compa-

nies known as the employers of choice

will have an advantage in attracting and

retaining talent,” she says. “This cycle

will enable them to solidify a leadership

role in the industry.” n

Dina Pyron recently conducted

a workforce study, Overcoming

Recruitment and Retention

Challenges in the Oil and Gas

Industry, which was conducted

with 25 high-level HR executives

representing 22 different oil and gas

companies. She identified six key

steps that companies can take to

recruit and retain workforce talent:

1. Adopt a hybrid organization

2. Redirect energies from process to strategy

3. Improve co-ordination and communication

4. Invest in culture and language training

5. Develop creative retention plans

6. Train the next generation

144Final wordAddressing the skills shortageThe talent pool is certainly shrinking, but what can be done about it? Dina Pyron offers her advice.

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O&G US 4

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