It’s Not the 80’s

by Fred Kunzinger

Every day I read articles about where the price of oil will be at the end of 2015. Just today I read analyses that put the December 31, 2015 price at anywhere from thirty up to eighty dollars. With all due respect to the analysts who put many hours into reading the signs to try to predict the future, these numbers, plus one dollar, will get you any size soft drink at your local McDonalds. A few days ago there was an article in the Wall Street Journal comparing the current situation in the oil and gas industry to the bust of the eighties. This isn’t the first article comparing and contrasting our current turbulent times with those of thirty years ago, but as someone who was there both times, two differences stand out to me, and I think they are worth mentioning (especially to those making the tough decisions right now).

First, our industry has a very bimodal demographic in the technical disciplines as a result of thirty years ago. Very little hiring occurred in geology, geophysics or engineering between 1985 and 2000. As a result, there are a lot of employees under forty and even more over fifty-five. If this time around companies resort to the traditional “last in, first out” method of staff reductions, we will have an industry with nobody to do the work five years from now. Those at the “first out” end of the spectrum will find others industries to go to (as many did in the mid-eighties), and those with a lot of tenure are going to retire soon. That being said, if you have too many of the tenured individuals leave, there will be thousands of years of experience walking out the door. If you have too many of the less-experienced individuals released, there will be nobody to whom those thousands of years of knowledge can be transferred. This time, if staff reductions are necessary, a lot of thought and reasoning will need to be applied to ensure that each company, and the industry as a whole, remains sustainable.

Second, E&P companies are sitting on two valuable resources: hydrocarbons…and information. Unlike oil, which has lost almost half its value over the past six months, information has retained its value, and in fact, considering the current state of the industry, information has probably increased in value. Unlike thirty years ago when integrating data meant putting a velum overlay on a paper map, techniques such as master data management, predictive analytics, data virtualization and big data allow companies to integrate and utilize data from all of their functions as needed. For about the cost of one Bakken well, a company can put processes and capabilities in place that will allow it to increase the value of its data and information, and from that, reduce risks and position itself to perform more complex analytics, which in turn leads to lower operating costs across the board and higher returns on investment.

It took our industry too long to recover from the mid-eighties. We’re in a position this time to keep a long term outlook and make modest investments that will pay for themselves many times over going forward.