The Future of Offshore TechnologyOTC 2005 Special Session on Technology ValuationHouston, TexasMay 5, 2005Presented by:Matthew R. SimmonsSource: Baker Hughes.com
SIMMONS & COMPANYINTERNATIONALOffshore Technology Has Come“A Long Way” Since OTC BeganOffshore Technology Has Come“A Long Way” Since OTC BeganWater depth limits became “boundless.”Robotic technology exceeded the space age.Subsea production systems created product hubs.Drilling technology made vertical wells obsolete.Reservoir drainage technology created “just-in-time supply.”3-D seismic/reservoir simulation created picture-perfect reservoir models.Rig efficiency soared.
SIMMONS & COMPANYINTERNATIONALAchieving Victories Took Three DecadesAchieving Victories Took Three DecadesMost first generation work on all great gainswere experiments in early 1970s.Commercialization began in the 1980s.Adoption as disruptive technology on global scalehappened in the 1990s.Energy technology is different than Silicon Valleytechnology.
SIMMONS & COMPANYINTERNATIONALLots Of Stakeholders“Fought The Good Fight”Lots Of Stakeholders“Fought The Good Fight”OTC PicturePetroleumequipmentcompaniesThe “Labs”(Universities;government R&D labs)R&D labs atmajor oil and gascompaniesOil servicecompanies
SIMMONS & COMPANYINTERNATIONALWho Paid The R&D Bill?Who Paid The R&D Bill?This remarkable technology boomcreated vast wealth.It added at least 25 million barrels per daymore oil (9.1 billion/year X $50 = $450billion/year of wellhead revenue.)The oil service industry collapsed.The E&P industry shrank.Energy financial returns were abysmal.“The labs” shrunk in staff, funds andincoming talent.Did the consumer stiff R&D?
SIMMONS & COMPANYINTERNATIONALThe OTC in 1982:“The Great Carnival”The OTC in 1982:“The Great Carnival”Attendance exceeded 100,000.Thousands of new exhibitors displayed “copies” ofgreat products.“The snake is eating its tail.”Walter Losk (Trico Chairman)Cinderellas Ball ended 121 days before the OTCbegan.The industry was spinning into an abyss.
SIMMONS & COMPANYINTERNATIONALThe Tragic EightiesThe Tragic EightiesThe OTC almost ended (odd/even displays.)Most 1982 exhibitors collapsed or disappeared.New hires were laid off.Survivors needed to perfect technology to survive.Survival of the fittest finally worked.By 1990, the survivors started limping home.
SIMMONS & COMPANYINTERNATIONALThe Nineties: A Decade Of IllusionsThe Nineties: A Decade Of Illusions“The only thing we have to Fear is FEAR itself.”The phony fear collapses:– Natural gas in 1992– Oil in 1993– Oil in 1998/early 1999– Oil/natural gas in late 2001/early 2002With each collapse our energy noose was tightenedeven more.Meanwhile, technology gains ended and technologyresults got misunderstood.
SIMMONS & COMPANYINTERNATIONALWhat Technology Accomplished(Perhaps)What Technology Accomplished(Perhaps)3-D seismic obsoleted many dryholes.The rig of today is like 8 rigs ofyore.Appraisal wells shrank and fewwere cored.By spending less, we foundmore.Surging wellhead supply got confused with sustained supply.Peer group F&D cost competition intensified.
SIMMONS & COMPANYINTERNATIONALSurviving The “Fog Years” Was ToughSurviving The “Fog Years” Was ToughOil service financial returns were terrible.Adding any new units was deemed “stupid.”Recruiting came in fits and starts, followed by lay-offs.E&P companies grew in size beyond “the drill bit.”Adding proven reserves was easy.Growing production became very hard to achieve.Bitter relations between E&P industry and vendorsdeepened.
SIMMONS & COMPANYINTERNATIONALQuo Vadis Offshore Technology in 2005?Quo Vadis Offshore Technology in 2005?Can the technology “black board” reinvent itself?Can the industry replace a lost generation ofpeople?Can a reformed pricing regime provide safe, fairreturns for those creating technology?Can a peace treaty be brokered between oilservice providers and drillers and those who usethese expensive, risky, high technology services?
SIMMONS & COMPANYINTERNATIONALThe Path To Sustainable Energy Is SteepThe Path To Sustainable Energy Is SteepWe need to gear up for a long trek.Access is more important thanmarginal technology gains:– North American OCS– Deep horizons held by shallowproductionBreakthrough R&D needs to leap-frog current programs (but whatdoes this mean?)People, people, people are thesherpas for this trek.
SIMMONS & COMPANYINTERNATIONALSome Breakthrough ThoughtsSome Breakthrough ThoughtsChanging unconventional oil and gas intoconventional with no energy intensity.Harvesting brine as it replaces cheap oil.Creating an inexpensive way to core appraisalwells.Practicing “conservation” without cuttingproduction.Inventing new forms of energy.
SIMMONS & COMPANYINTERNATIONALThe Piper Will Finally Get PaidThe Piper Will Finally Get PaidReality economics finallyprevail.Energy prices need to rise toa level that triggers anexplosion in genuine R&D.Will SPUTNIK light up ourenergy skies?
SIMMONS & COMPANYINTERNATIONALOur Panel Has Some GenuineChallenges To AddressOur Panel Has Some GenuineChallenges To AddressHave we sowed the seeds toend offshore technologygains?Is the industry capable(mentally, physically andfinancially) of staging a greatcome back?Is our energy hole too deep?Who will carry the heavywater up the hill?Will they get repaid?2005