Drilling advances

A few years ago, I was having lunch at a company function with a long-time colleague when we were joined by a newly hired employee. Fresh-off-the-campus and having just completed the company’s grueling drilling fluid school, he could not contain his excitement over joining an industry that he saw as being on a non-stop, upward trajectory.

While I didn’t necessarily set out to be the Grinch That Swiped His Rose-Colored Glasses, I nevertheless had to point out, “You obviously weren’t around in the eighties.”

Then again, pick up a newspaper in any U.S. oil and gas city these days, and chances are you may feel like you are back in the mid-1980s, when the nation’s largest jackup fleet could be found stacked in Sabine Pass, Texas. Across the state, in Midland, vacant floors of a new oilfield office building were being leased to local ranchers for hay storage. As 2014 wrapped up, much of the media would have you believe that oil was on the fast-track to single digits and everyone should rush out and buy a Humvee. (Many of you may remember newspapers as those oversized and neatly-folded sheets of paper that were deposited at your residence each morning, and upon which were printed articles and photos deemed newsworthy, interesting or at least nominally entertaining).

During my earlier life in what sadly is becoming an archaic news medium—one in which we actually once relied on something called a “typewriter” (you can Google it)—it was customary at the start of a new year to forecast what to expect over the next 12 months. However, after more than three decades in the oil and gas business, not to mention following American football far too closely over the years, I’ve come to realize that my capacity for making predictions that actually happen is sorely limited.

That said, given today’s climate, it is not going out on any limb to predict a reassessment of the “Big Crew Change” and the incessant warnings of a critical shortage of qualified personnel. That’s what drew my attention to the front-page headline in the Dec. 14 Houston Chronicle, which came reasonably close to mimicking some of those we saw 30-odd years ago, and brought me back to that company lunch. Under the headline, “Campus anxiety rises as crude price falls,” the story goes on to describe how soon-to-be-minted petroleum engineers are quickly finding their once-rosy job prospects mostly full of thorns.

According to the article, universities in Texas and Oklahoma have seen enrollment in petroleum engineering courses swell over the past six years, churning out new engineers at a clip that would be difficult for the industry to wholly absorb, even in better times. According to the Chronicle, recent enrollment figures from select university petroleum engineering departments are staggering: Texas Tech University up 134%; Texas A&M University saw 137% more PE students, and the number of aspiring petroleum engineers at the University of Oklahoma quadrupled.

Professors and university administrators say that once-prospective and now cash-starved employers have begun canceling once-ubiquitous campus recruiting. The piece also offers a cautionary tale, and a bit of advice for new graduates, or anyone, who recently joined an industry they perceived as going nowhere, but up—get used to it.

“It’s healthy for students to see the cycle,” Jamie Belinne, assistant dean of the University of Houston’s business college, told the Chronicle. “There were people coming up in the last few years, who had a naive belief that the energy sector was indestructible.”

UK relief, U.S. headaches. On another front, hopefully more producing nations will follow the lead of the UK, which in an effort to spur mature field development, cut the supplemental tax rate on North Sea production, while also providing operators an allowance to help promote high-pressure, high-temperature (HPHT) drilling. According to a Bloomberg report on Dec. 3, the tax rate was reduced to 30%, which while less than the 20% that industry requested, it at least shows a willingness to offer some relief in the face of tumbling prices.

With any luck, U.S. bureaucrats are taking note. However, while it remains to be seen what will shake out when the new Congress takes over this year, the feds, up to now, have not met a roadblock they didn’t like. Take for example, persistent U.S. efforts to give an entirely new meaning to “creature comfort.” In short, while certainly not the most critical issue facing the industry today, the U.S. Fish and Wildlife Service (USFWS) continues pushing its proposals to designate the lesser prairie chicken, sage grouse and the northern long-eared bat as endangered species. Such designations would impose troublesome sanctions and raise costs in a significant swath of operations in Texas, the Rockies, and the Mid-Continent and, in the case of the aforementioned bat, the Marcellus and Utica plays.

While I, for one, have an abiding fondness for birds, in particular, and find enjoyment in their visits to my backyard feeder, serious pushback would ensue, if some association told me I had to forgo use of a portion of my property or make expensive modifications to provide the sparrows a more undisturbed living area.

Here’s to stability. Meanwhile, in this space last September, we identified New Zealand as one of the nations that operators were considering, as they begin to take second looks at investments in countries where political instability and safety issues offset world-class reserves. Comparatively high offshore drilling costs notwithstanding, Chevron, Statoil and India’s ONGC Videsh Ltd. were among the operators acquiring exploration blocks in New Zealand’s most recent offshore and onshore lease offering. Chevron and Statoil, collectively, were awarded four blocks offshore, in the East Coast, Pegasus and Reinga basins, while ONGC was awarded an exploration license in the Taranaki basin offshore.