The Engineering Mission in a Mature, High-Cost E and P Environment
Authors: Volland E.J. 
Published: December 2007

The business climate today is challenging the existence of the U.S. oil industry as we currently know it. Technology is the key to future success. This paper examines remaining U.S. resource-development opportunities and technological advances that will be required to develop these resources economically.

Introduction

As we progress through this decade, the U.S. oil and gas resource base continues to mature; consequently, the costs required to explore for and to develop our remaining resources is increasing, particularly compared with these costs outside the U.S. U.S. industry is also subject to uncertain and widely varying prices, growing import levels, and an increasing emphasis on the environment. These factors are creating a business climate that, at a minimum, will require considerable change, and at worst, may challenge the very existence of the U.S. oil industry we know today. The future will likely be determined by how well the U.S. industry can use technology to find and produce oil at prices competitive with the produce oil at prices competitive with the rest of the world. This technology is critical to the U.S. industry now, and will become equally vital to the international industry as non-U.S. resources mature. This paper examines the role of engineering and paper examines the role of engineering and technology in the industry's future.

Business Climate

The 1980's were turbulent times for the U.S. oil industry. The supply disruptions of the 1970's triggered unprecedented growth in real oil prices which, in turn, fueled substantial increases in U.S. exploration and development activity (Fig. 1). The "boom years" of the early 1980's, however, were followed by an oversupply of crude oil, declining prices, and industry retrenchment that culminated in the price collapse of 1986. Price and industry activity levels generally Price and industry activity levels generally stabilized in the late 1980's.

The price volatility that recently dominated our industry's business climate also influenced the U.S. oil supply and demand situation. After declining because of economic cycle activities, conservation, and the price run-ups of the early 1980's, the U.S. price run-ups of the early 1980's, the U.S. demand for oil increased steadily from 1983 through 1988, became essentially flat in 1989, and dropped slightly in 1990 (Fig. 2).

On the supply side, U.S. production has declined at an average annual rate of 3.3 % since 1985. This decline has contributed to increased U.S. reliance on imported oil. In 1990, 42% of the U.S. oil and petroleum product demand was met by imports. This petroleum product demand was met by imports. This percentage will likely increase in the absence percentage will likely increase in the absence of significant new U.S. production.

Continued development of the U.S. resource base is largely dependent on three factors: price, cost to find and produce oil and gas, and availability of public lands for exploration. The industry has little, if any, influence on the world oil price because of the large world crude-oil reserve base and the OPEC-controlled excess production capacity. Government policy could stimulate exploration and development activity through price or tax incentives, but this has generally not occurred. Regardless, it would be extremely risky to count on incentives. For the near term, it appears that the price of crude oil will be determined by forces extemal to the industry. We will have to focus our efforts on reducing the cost to find and produce oil in the U.S. Technology will be produce oil in the U.S. Technology will be the key.

The remainder of this paper deals with the need to develop the new technology required to find and produce new reserves. Technology, however, must also play a role in reducing operating costs. Although U.S. producers generally have a transportation producers generally have a transportation cost advantage over non-U.S. producers, the average U.S. cost to operate oil and gas production is substantially higher than the production is substantially higher than the average cost to operate internationally. Higher U.S. operating costs are the result of increased environmental emphasis and regulation, the changing production mix caused by the growth of EOR, less oil and more water production from a greater number of wells, and production operations in hostile frontier areas. Automation, computers, energy efficiency, and a host of other schemes will be required to make the business more productive so that U.S. costs can remain in line with international costs. In short, U.S. producers will have to use technology and more sophisticated practices to match costs with non-U.S. producers who have a number of inherent advantages. This, in many ways, win be as important a challenge as finding new reserves to replace our depleting ones.

JPT

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