INTERVIEW: JEFFERIES’ RALPH EADS | TECHNOLOGY IN CHALLENGING MARKET CONDITIONS | A RECRUITING AGENCY’S PERSPECTIVE
The Magazine by and for Young Professionals in Oil and Gas
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VOLUME 11 // ISSUE 2 // 2015
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Contents
VOLUME 11 // ISSUE 2 // 2015
3
What’s Ahead: A Cautionary Tale
TWA Editor-in-Chief ,Tony Fernandez, on the importance of keeping academic
enrollments high.
4
TWA InterAct: How the Oil Price Drop Affects Students
Presidents of SPE student chapters share their comments on how the new oil price
environment affects petroleum engineering students.
6
TWA Interview: Ralph Eads, Jefferies
Eads, vice chairman and global head of energy investment banking for Jefferies, on
the factors affecting the oil price and the impact on the banking sector.
Cover design: Alex Asfar, SPE.
For the oil price graph, see page 28.
8
Academia: Turbulent Oil Prices, Turmoil for YPs
For young professionals, understanding the governing principles of oil price and
connecting them with facts is key to facing the price turmoil.
10
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Pillars of the Industry: Upping the Ante on Technology, Leadership
John Wishart, Lloyd’s Register, and Judith Dwarkin, ITG Investment Research,
emphasize technology and leadership growth as a strategy to face challenging
market conditions.
13
Economist’s Corner: Price Cycles Explained by an Expert
Gürcan Gülen of University of Texas at Austin explains the mechanics of oil
price cycles.
16
HR Discussion: Recruiting in Current Market
In a challenging market condition, an astute observation of the investment flow in the
industry can help young professionals land in good jobs.
18
Forum: The Sky is Falling—Again
Euan Mearns of Energy Matters blog, Jared Wynveen of McDaniel & Associates
Consultant, and James Fann of Cenovus energy share their perspectives on the oil
price downturn.
21
SPE 101: SPE Technical Disciplines
Understanding SPE’s technical disciplines can help you get the most out of your
membership.
22
Discover a Career: Reserves Estimation
Larry Mizzau, principal of reserves and resources governance at Cenovus Energy,
explains what a career in reserves estimation entails.
25
Technical Leaders: Ward Polzin, Centennial Resource Development
Polzin’s comments on the effect of commodity prices on the engineer and the industry.
28
Soft Skills: How to Survive Oil Price Volatility
Young professionals can use downturns as an opportunity for long-term career growth.
30
Tech 101: Keystone XL—Rhetoric vs. Economics
Craig Pirrong of Bauer College of Business discusses the economics of Keystone.
33
YP’s Guide To… Russia and China
How oil prices affect the economies of countries differently.
35
YP Newsflash: 2014 SPE YMOSA Winners
Networking, volunteering—common thread of award winners’ messages.
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Printed in UK. Copyright 2015, Society of Petroleum Engineers.
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What’s Ahead–From TWA’s Editor-in-Chief
Déjà vu for Petroleum Engineers:
A Cautionary Tale
Tony Fernandez, Editor-in-Chief, The Way A head
I
14,000
12,000
Number of Students
remember my first year in the industry very fondly:
it was 2006, oil prices had been climbing steadily for
over half a decade, and the “big crew change” was
starting to become dinner table discussion. The brain
drain that would eventually come from the retirement of senior
employees was imminent, experts advised, and it seemed like
companies were taking advantage of the good times to hire
like crazy as they positioned themselves to hedge the effect on
their operations.
I vividly remember a recruitment event organized by a
large independent during the ATCE for which they rented
the entire Sea World theme park in San Antonio and threw a
party for us. It was an extraordinarily memorable event for any
impressionable recent grad, and the future seemed prosperous.
The Petroleum Economist encapsulated the hiring spree by
quoting the head of US recruiting for one of the supermajors as
saying, “Times are very good for us…and we are expanding–
USD 60 [a barrel] oil will do a lot for your business. At the same
time…a large number of employees are in their 50s and we
need to increase our hiring across the board.”
Academia listened to industry’s pleas for help, experiencing
a meteoric rise in petroleum engineering enrollment not seen
since the 1980s (Fig 1). Unfortunately, those students in the
1980s largely found themselves unemployed upon graduation
as a result of cost-cutting measures following the oil price
collapse of 1987, the result of which became the very same “lost
generation” of talent that evidently now needs to be bridged by
the big crew change.
Fast-forward to today and, after some wild swings in
commodity prices, to be sure, we nonetheless see oil once
again hovering at around the same USD 60 mark which I fondly
recall from the birth of my career. But a quick study of the
headlines paints a starkly different picture this time around, as
seemingly every company is either laying off people, freezing
hiring, or doing both. An onslaught of such headlines has
turned the mood in university campuses to an anxious and
somber (if not pessimistic) one, which is completely opposite
to the confident euphoria when I was there. I encourage you
to read the TWAInterAct section, which features comments
from SPE student chapter presidents on how the price drop is
affecting students.
According to a Schlumberger Business Consulting study
reported in the Houston Chronicle, our industry was expected to
have a net loss of professionals by 2014-2015 due to retirements,
and that was before today’s commodity-driven hiring freezes
and early retirement packages. This means that as the big crew
10,000
8,000
6,000
4,000
2,000
0
1975 1980 1985 1990 1995 2000 2005 2010 2015
Academic Year
Fig. 1—US petroleum engineering enrollment. Courtesy
of Lloyd Heinze, Bob L. Herd Department of Petroleum
Engineering, Texas Tech University.
change is finally under way—and the industry prepares to feel
the effects of its neglect on its workforce during the 1980s and
1990s—academia is beginning to experience the same cold
shoulder from the industry in the form of underfunding and low
hiring that it felt back then.
It is a tough but understandable decision for executives: do
you stay the course and allow your company to hemorrhage
right into bankruptcy, or do you cut costs any way you can (even
if it means laying off people) to try to secure the future of the
business? Your employees (those still around, anyway) and
shareholders would certainly support the latter.
Final Thoughts
At a time when the wound is still healing from the damage of
the 1980s, we as an industry must ask ourselves whether ripping
the scab off by virtue of another lost generation will in fact leave
a permanent scar and cement our reputation as an industry of
boom/bust hiring—incapable of protecting the lifeblood of the
business by adequately managing knowledge transfer between
generations. The irreparable effects such a reputation could
have on the industry’s pipeline of talent are self-evident and too
grave to want to think about. Students will always be pragmatic
about their careers and, facing an uncertain future, they will
seek alternatives and, more than likely, never return.
Indeed, the similarities between the 1980s and today are
too many and ominous to ignore. Does the cyclical nature of
our business automatically doom us to these lost generations
during each abrupt dip in commodity prices? Or will there be
a generation that finally says, “fool me once, shame on you; fool
me twice…”? TWA
Vol. 11 // No. 2 // 2015
3
TWA InterAct
Want More Internships, More Hiring—Oil
and Gas Students Tell Companies
The rapid decline in commodity prices has caused most oil and gas companies to reassess their hiring goals or cut back on staff.
What does someone about to enter our industry make of this shift in hiring trends? From internships and full-time job offers to
pivotal academic decisions, students looking to enter the oil and gas industry are very sensitive to price fluctuations. We asked SPE
student chapter presidents from around the world how the new oil price environment has affected the status quo at their universities.
The downturn is probably the best thing to happen to our young
While our students understand that regardless of what oil prices are,
SPE chapter. We have grown in membership and involvement
there will always be a demand for EITs, students, and interns. We are
in our organization because students are understanding that a
especially nervous with news of companies rescinding student and
degree alone cannot guarantee employment.
new grad offers, but so far those that are interested in energy remain
William Eerdmans
interested and will pursue opportunities that are available.
University of North Dakota, USA
Kevin Zhou
McGill University, Canada
The biggest hit has come to our upperclassmen students as some have not had field internship
opportunities and are about to enter their last year of college. According to our Capstone
Design Instructor, over half of the domestic students in the BS program have not found fulltime employment for post-graduation. Morale is low among our students especially when
asked to answer the questions, “What will you do after graduation?” or “Where will you be
working this summer? However, those dedicated to the industry are pushing forward and
fi nding ways to boost their résumé and technical understanding.
Tyler Carter
University of Tulsa, USA
There have been instances where internships have been shortened, and we hear
rumors of some internships being taken off the table altogether. We are becoming
more involved with the SPE Gulf Coast Section and are sending seniors without jobs
to their events for the opportunity to network and learn new skills.
Aziz Rajan,
University of Houston, USA
Companies in Colombia have adopted severe austerity policies, including cuts in
internships. Ongoing recruitment processes were suddenly canceled and many of our
young professionals were fi red in mass, highly increasing the unemployment index in our
Facing the fact that just one of our more than
demographic. This is generating a deep shift through academia and recent graduates with
20 students will get a job offer or internship
regard to increased experience requirements and lack of job opportunities. Consequently,
has encouraged students to develop more
the number of graduate students is going up.
professional competencies. Many of us will focus
Henry Mauricio Galvis
Universidad Industrial de Santander, Colombia
our attention in research.
Alfredo de la Fuente
Universidad Nacional de Ingenieria, Peru
4
In our last career fair, we had more construction and
The new oil price has influenced our student population in Russia strongly.
automobile companies than oil and gas companies as
Most Russian oil companies have limited places for graduates and, as a result,
the latter are not recruiting at the moment. So students
we have seen lowered activity at our career fairs from the industry. Some of
are resorting to working in related fields like chemical
my young colleagues have been laid off because of job cuts.
Alexey Suvorov
plants, automobiles, and consulting fi rms.
Novosibirsk State University, Russia
Ezeike Kenechi
University of Salford, UK
We can feel the tentativeness and exertion which is present on the
We went from a 40% direct-hire rate in the last 5 years to zero job
petroleum market during chats with other students, professors,
offers this year. Budget cuts have affected everything from student-
and lecturers. However, dedicated and passionate students
worker jobs to chapter funding and even our graduation venue. The
continue to get internships, part-time jobs, and even full-time
harsh reality is that, for the near future, prospects are dismal with
employments at prestigious companies.
hiring freezes throughout the workforce. Non-Qatari residents (80%
Joschka Röth
RWTH Aachen University, Germany
of our student population) have the added complexities that come
with the phenomenon of “Qatarization,” leaving almost no room for
employment or research opportunities.
Ahmed Rauf
Texas A&M University at Qatar, Qatar
As part of our degree, we have to undergo a 6-month internship
before graduation. Unfortunately, that is where we have felt the
biggest impact. Virtually every company has an office or lab in
Pau, but only two companies have hired interns this year. Out of
the 50 students in our program, only approximately 60% secured
The second phase of the crash, from November to January, had the
an internship, 33% of which came in the form of lab assistants to
biggest impact on us, especially those who are about to graduate.
our professors.
While some companies continued to provide internship opportunities
Casaurang Christophe
Université de Pau, France
despite the downturn, a lot of companies originally registered for
campus recruitment backed off. Most of the students are in a dilemma
whether to pursue higher studies or switch career paths to sectors
like business analytics. To that end, a few are set to join tech startup
companies and consulting fi rms.
Vikram Sai
Indian School of Mines, India
Oversaturation of petroleum engineering students seems to be a problem:
our institute had 40 undergrads in 2004, compared to the 90+ undergrads
today. Several seniors in our program with high grades are unable to fi nd
jobs in this environment, and a few of our fi rst-year students witnessing
their difficulties have left the degree, presumably as a result of the lack
of prospects.
Imran Hullio
Mehran University, Jamshoro, Pakistan
More than 50% of our senior students, who are supposed to be
on internship, have yet to secure one. This has raised anxiety
on campus as most students are considering furthering their
education by enrolling in a master’s degree program rather than
starting their career in oil and gas. Some students intend to further
Companies are cutting off their sponsorships, donations, and even the
their education in related fields pending a price recovery, while
day-to-day visits to the industry engagement opportunities we provide to
others intend to branch into other areas outside the oil and gas
our students. It has become so hard to provide internships and different
industry altogether.
technical development programs. Our graduates are now suffering truly as
Jackto Oghenefejiro
Madonna University, Nigeria
the opportunities all over the world have gone limited.
Ahmed Elgamal
Suez University, Egypt
Vol. 11 // No. 2 // 2015
5
TWA Interview
Ralph Eads III
Vice Chairman, Global Head of Energy
Investment Banking, Jefferies LLC
Ralph Eads is
vice chairman
of Jefferies LLC
and global head
of Jefferies’
Energy Investment
Banking Group. His
extensive mergers and acquisitions
(M&A) experience includes working on
more than USD 300 billion in energy
M&A transactions. Before this, Eads
was president of Randall & Dewey,
which was acquired by Jefferies in
2005. His previous positions were
executive vice president of El Paso
Corp., handling its unregulated
businesses; head of the energy group
of Donaldson, Lufkin & Jenrette; and
senior positions at S.G. Warburg and
Lehman Brothers. Eads serves on the
board of trustees of Duke University.
associated with finance, but you also get
exposed to the innovation in the industry.
What or who inspired you to work in
the oil and gas industry?
How has Jefferies’ business
changed? What fundamental
changes are Jefferies making to
adapt to this new price regime? What
makes Jefferies different from other
M&A banks?
I am a fifth generation Texan and a native
Houstonian, so I have been around the
oil business my entire life. One of the
things that drew me to the industry is all
the great lore around it. I have always
liked all the stories and the traditions of
risk-taking and boom and bust. It is just a
fascinating industry.
You have assumed various financial
roles throughout your career in the
industry. What roles do you or did
you enjoy most and why?
I enjoy my current job the most. Here
at Jefferies, we have a true combination
of finance and technical expertise. It is
stimulating to see interesting projects
and to do technical analysis on individual
plays. You get the transactional activity
6
How do fluctuating oil prices,
specifically the low oil prices seen
today, affect the mergers and
acquisitions (M&A) business?
It kills it; the market just stops. We mainly
act for sellers and that business has
stopped because buyers want to buy
packages at USD 50/bbl oil, and sellers
do not want to sell that low given that the
price of oil was USD 80/bbl only a short
time ago. If prices stay low, sellers will
start selling at the lower price, or if prices
recover, we will get back to a market that
transacts around USD 80/bbl oil. But for
now, the market is frozen.
We are reacting to the market. In truth,
we will be less busy in this environment
than we would be in a “normal” price
environment. But companies still need
capital and when you do a private
transaction, the buyer of that security
wants to understand the asset they
are buying, what it looks like, and the
development plan that goes with it.
Fortunately, there is a lot of private capital
available for the industry right now, and
we are a leader in private capital-raising
because of our technical expertise.
We have 40 engineers, geologists,
and geophysicists embedded in our
firm. We do not just package the data to
sell; we actually think about the technical
issues and say “what opportunities are
there with this asset to make it more
valuable, and how do we portray that to
the market?” For example, we have done
a complete basin analysis of the Eagle
Ford Shale. One of the reasons we do
this is that it allows us to understand what
is happening in the different plays. We
are oilmen first, financiers second. We
are driven by what is happening to the
underlying business of the industry.
Are many startups failing during this
period of low-cost oil?
It depends. Some startups have strategies
that can live in a USD 50/bbl world,
and some do not. For example, if it is a
company that is interested in tertiary
recovery—high-cost oil—then those
business plans will idle. Maybe they
will not go out of business, but they will
not spend any capital because they
are not attracting any. There are some
businesses that can adapt to a lower
price environment and still make money
because of the underlying investments
that they are trying to create.
What are some of the social
and political causes of the low
commodity prices?
We have the perfect storm for low prices
right now: the Saudis have the will and
the money to cut prices, there is political
stability in all the bad actor countries,
and we have slack global demand. Those
are the three variables that contribute
fantastically to low oil price. Though,
any one of these three variables could
change quickly.
I think first, and most importantly, the
Saudis want to inflict pain on Iran and the
other bad actors, Syria, Iraq, etc. So they
are trying to increase their political clout
and to hit other countries’ pocketbooks.
Secondly, they want to create uncertainty
about the long-term oil price because
they want the global companies to use
USD 50/bbl for planning prices rather
than USD 70/bbl, to cut projects and lower
their production. They are just trying to
drive down price and it does not take
very much oil to do that.
What will it take for the oil price to
increase? Do you think oil price will
ever return to USD 100+/bbl?
Sure, absolutely, and maybe even in the
next 6 months. When prices fell during
2008–2009, which was driven by demand
fall, there was a 3 million BOPD overhang
and prices recovered in 6 months. What
everyone misses here is the amount of
“extra” oil we have today, let us say, 1
million BOPD. That is nothing in a 90
million BOPD market. In the 1980s, it was
a 10 million barrel surplus in a 70 million
BOPD market. The current deliverability
margin is quite low and the world
depletes at around 7 million BOPD in a
year. There is not that much extra oil to
go around and so the market is going to
tighten pretty quickly.
Once the Saudis make their point,
they will turn the valve cutting off
500,000 BOPD and the low price will
solve itself in 3 months. Outside of the
market normalizing, the marginal cost
curve for the industry continues to march
up. We have found all the cheap oil and
we are going to real frontier regions such
as really deep water to get incremental
oil; it is expensive. There is not much
cheap oil lying around. This low oil price
is such a weird aberration because
actually the underlying economics
are that the industry’s cost structure
continues to march up. The world needs
USD 80/bbl of oil to work.
Absent change in production from the
Saudis, prices will probably stay down
for a while and the industry will correct.
I do not think on a global basis the
industry can make money at USD 50/bbl,
so natural depletion together with lack
of investment will cause prices to turn
around. If prices stay low, people will
start to take drastic actions and the longer
prices stay down, the higher they will
rebound later.
What are the roles of demand and
supply in the oil and gas market?
What sort of projection can you make
for the future global energy demand?
Demand is not decreasing, it is just
not growing. First, China is becoming
more efficient, which is natural in any
developed economy. Second, demand
in the emerging markets, where they are
not as efficient, has gotten smoked by the
[strengthening] dollar. Everyone buys oil
in dollars and the dollar has appreciated
against other currencies in the last 6
months—by a lot. A lot of the downward
pressure on prices has been offset by
the fact that the dollar has become a
lot stronger.
On the supply side, we have enough
oil and natural gas to run the planet for
at least the next century. We may not
choose to, but the resources exist. We
won’t run out of energy, and energy
efficiency is going to reduce energy
demand over time. In fact, it has already
reduced demand in that energy intensity
per dollar of output is going down fairly
rapidly. As this continues, the global
economy gets less energy intensive.
How do different countries affect the
demand and supply of oil and gas in
the global market?
The list of countries that will contribute
to incremental deliverability is tough. It
is Iraq, Iran, Libya, and maybe Russia.
Although these countries are stable right
now, people are not rushing to invest
there, because history says they are not
going to stay that way.
The lease sales in Mexico will add
to supply, but in the much longer term.
The challenge with onshore Mexico is
going to be infrastructure—they do not
have roads and pipelines, and the recent
oil price changes are going to delay a
lot of Mexico’s production too. Then you
have the US, which is stable and will
continue to increase production even at
today’s prices. The key to growing US
production is the Permian Basin. It has
become the marginal supplier of oil in
the world and the industry’s center of
gravity. I estimate the Permian Basin has
recoverable reserves of 250 billion bbl of
oil. That is a lot of oil and there is a lot of
capital needed to get it.
What should be the response of
policymakers to oil prices in
countries around the world?
So far, no government leader has stood
up and said anything about anything
other than Saudi Arabia, UAE, and Kuwait
all saying “we are not cutting production
any time soon.” At some point, they will
say they have reached the benefit that
they were after, but what is that trigger?
Who knows.
The US has exponentially increased
oil production with the shale
revolution. How sustainable is this
level of oil production?
The resource plays in the US are in the
third inning of the game, and they will
continue to produce for a long time. In
the 1950s, the San Juan basin recovery
factors were estimated at 20% to 30%.
Now, there are places in the basin where
recovery has been 110% gas in place due
to technological advances that increased
recovery efficiency and unlocked
neighboring horizons. That same trend is
going to happen in other plays. Right now,
the recovery factor in the Wolfcamp is
10%; what has to happen technologically
to get to 50%?
The US has been granted a huge
gift in the shale boom. It has reduced
the cost of energy and it has created
lots of employment in a world where
we are worried about stagnation in
wages and a lack of good jobs. The
energy industry has been a shining
beacon for the US, and it is important to
remember that.
Continued on page 15
Vol. 11 // No. 2 // 2015
7
Academia
Turbulent Commodity Prices and the
Turmoil for Young Professionals
Tom Seng, University of Tulsa
From June 2014 to January 2015, global
crude oil prices dropped by almost
60%, from about USD 108/bbl to USD
46/bbl. There were many factors that
drove these prices downward. Being
an integral part of the industry, it is
important that young professionals
understand the governing principles
and be able to connect them with facts.
The following are some of the
prominent factors responsible for the
drastic change in oil prices.
Supply and Demand. According
to the December 2014 monthly
update of the United States Energy
Information Administration, the global
supply of liquid fuels increased by
1.8 million B/D to 92 million B/D in
2014 while demand did not keep pace.
Domestic oil production in the US
increased to 8.8 million B/D last year,
the highest level in 30 years, and US
crude oil inventory levels have reached
an 80-year high. Meanwhile, US
demand for oil declined from what had
been a 10-year high.
Economic. Strong economic growth
translates into higher energy usage
and can impact prices positively. But
the converse is also true, in that weak
economic indicators could represent
lower energy consumption and,
consequently, lower prices. The US,
China, Japan, and India are the world’s
top consumers of crude oil.
Europe consumes 22% of the
world’s oil. Meanwhile, Europe’s
largest producer of crude, the United
Kingdom, became a net importer in
2013. Economic indicators for all these
countries are intensely watched daily
as traders attempt to determine the
future direction of the price of oil and
countries become intrinsically tied to a
global economy—one that can be very
fickle in nature.
Political. Energy will always be a
controversial issue pitting producers
against consumers and environmental
groups. A recent example of this is
the Keystone XL oil pipeline project
in North America. The planned route
from Canada’s Alberta province to
Cushing, Oklahoma, has run into issues
regarding a required international
border permit, landowner rights,
and environmental concerns over
the process that produces the crude
oil itself.
Tom Seng is an assistant professor of energy business at the
University of Tulsa working with course development and
specializing in energy risk management, asset optimization,
and energy commodity trading. He is also a consultant and
teaches an online course on fi nancial energy commodity
trading that he developed for Pennsylvania State University.
Before joining the academia, he worked for more than 30
years in the natural gas industry in roles such as director of
risk control and manager of product marketing for several energy companies. He
holds a BS in political science and history and an MBA in international oil and gas
management from the Robert Gordon University.
8
Geopolitical. There are probably
far too many global events that can
be perceived as having an impact on
oil prices. Internal and cross-border
confl icts in oil-producing countries and
regions tend to cause fears of supply
disruption in world energy markets.
Civil unrest in Nigeria and the South
Sudan, the ongoing dispute between
Israel and Hamas over Palestine,
Iran’s nuclear status, Russia’s stance
on Ukraine, Somali pirating of crude
oil tankers in the Gulf of Aden, and the
ISIS takeover of producing fields and
other oil-related infrastructure in parts
of Iraq are just some of the continuing
events being monitored by energy
markets. Not to mention that the actions
of the Organization of the Petroleum
Exporting Countries alone can cause
earth-shattering shakeups in global
oil markets.
Cross-Commodity Relationships.
Supply and demand fluctuations in the
many refi ned and distilled products
derived from oil directly impact
crude prices. Gasoline, diesel, jet
fuel, and heating oil are among the
major oil products that affect the price
of crude.
Human Factor. Crude oil is traded
globally in fi nancial markets. These
are transactions for the future
purchase or sale of oil and most occur
electronically. As such, traders look for
any information that could influence
price direction. For them, it is all about
perception. They are human beings
and they tend to react emotionally as
we all do. Billions of dollars are at stake
and so both greed and fear drive the
market. As such, irrational decisions
can be made without consideration for
important facts that may be uncovered
later. This is why some oil price
movements may not make sense to
the average observer. Add to this the
more recent use of supercomputers,
which use complex mathematical
algorithms and execute large volumes
of calculations in nanoseconds and you
have an extremely volatile marketplace
for energy commodities. When oil
prices rise, producers, far too often,
believe they will continue to rise and so
don’t sell when they should.
How Oil Prices Influence
Academic Enrollment
So, what does the current oil market
environment mean for academic
institutions and their students?
Unfortunately, the job market in
the oil and gas industry will become
tighter. But the industry has seen these
cycles before. As recently as 2008, oil
prices plummeted to about USD 32/bbl
in December of that year after reaching
a high of USD 145/bbl in July. In the
early 1980s, a tremendous “bust” in oil
prices had far-reaching consequences
for the oil and gas business. Some of
those who lost their jobs at that time
never returned to the industry.
Two potential scenarios arise out of
these situations. Firstly, as companies
seek to cut costs, they may choose to
scale back on tuition assistance for their
employees, making it harder for them
to continue to attend college, or for new
students to enroll.
Secondly, and the more likely
scenario, is that at times like these,
people seek to diversify their
knowledge and look for a form of
retraining. Enrollment in graduate
programs, in particular, tend to
increase as people desire that
“next level” degree that separates
them from their peers. Others may
wish to advance from their current
positions and eventually move into a
management role.
Many people who already possess
a technical degree may wish to
learn more about the business and
leadership aspects of the industry
as well. Merely being enrolled in an
advanced program can be a positive
signal to a current or future employer
that the candidate is constantly striving
to learn new skills that can add value to
the company.
The Effect on Job Market
For soon-to-be graduating students,
there should still be ample
opportunities for employment in the
oil and gas industry. Every time we
experience a bust, such as the current
one, companies take steps to reduce
costs. And yes, some companies will
put a freeze on hiring.
But what tends to happen is that
companies will look for ways to reduce
the current workforce, rather than stop
recruitment altogether. This works
to boost confidence in academic
institutions and job seekers about the
company’s position and ability to ride
through tough times.
One way in which they can do this is
by offering early retirement packages
to their more senior employees.
Another step is pruning the middle
management by virtue of output
optimization, so youngsters are always
encouraged to step up their game and
acquire skills fast.
Finally, there has been an age and
experience gap in the oil and gas
industry for quite some time now. Some
of the previous price busts resulted in
a brain drain because of experienced
people finding employment in other
industries. This has created the need to
find good replacements and get them
up to speed rather quickly. We are yet
to fill this gap.
A key factor that can help in gaining
employment is to differentiate oneself
from others in the job market. A more
diverse academic background and a
cursory understanding of the business
can go a long way in impressing a
potential employer both on paper and
in an interview setting. Being articulate
in the terminology of the industry
illustrates some basic understanding of
what the job may entail as well.
Swaying With Commodity
Prices Can Hurt Companies
There is a future market for crude oil,
which provides an opportunity for
producers to lock in a price down the
road. With the recent fall in oil prices,
it has become apparent that many
companies failed to take advantage of
this risk-reducing mechanism. They
can now see the consequences of their
inaction in the form of lower revenue
and stock prices.
On the other hand, those
companies with the foresight to
take what the market gave them in
terms of high prices last year will
reap the benefits of their prudent
decision making.
In my opinion, corporate
executives have an obligation to
their stakeholders. While this group
encompasses the shareholders,
stakeholders comprise several groups
that are, or may be, impacted by
the company’s success or failure.
Employees, customers, suppliers, and
the general business environment
are all affected by the rise and fall of
corporate earnings.
As such, it is key for companies to
adopt a long-term approach that can
guarantee an even-keeled revenue
stream and business sustainability. This
is to the benefit of all stakeholders and
to the hope of the new generation that is
on the brink of shaping the pathway to
the future.
At the same time, young
professionals need to do their part,
too. Being swayed by the market’s
rapidly changing numbers is not
going to be helpful. Understand
that you belong to a long-standing
industry with immense power to
drive the world. Other industries are
growing too, and with collaboration
and innovation, we can bring about
improvements and advancements to get
the economics of our commodities back
on track. TWA
Vol. 11 // No. 2 // 2015
9
Pillars of the Industry
Upping the Ante on Technology and
Leadership in Challenging Market Conditions
Part 1: John Wishart, Lloyd’s Register
Science and engineering is the
lifeblood of my career and a passion
since sixth form. It was my teacher
who first encouraged me to enroll
in engineering, which later led
me to qualify with a degree in
chemical engineering.
My first job was with John Brown
E&C in London where I worked on
projects in the oil and gas industry.
After a few years, my job with BP took
me from the engineering contracting
sector to a role focused on project and
facilities engineering. My next career
step was joining the then newly founded
Genesis Oil & Gas, moving to Aberdeen
and then to Houston, by which time
the company was owned by Technip
and later I became Technip’s US chief
executive officer.
While it is true that the mistakes
you make along the way help you learn
and progress in life, I can say that I
have truly gained a lot personally and
professionally from the journey I have
made and the people I have worked
with. When you start out in the world
of work, knowing how to take your
educational knowledge to the market
place and learning how to apply it in
different ways in different situations is
critical to your success in life.
I believe that harnessing and sharing
expertise and talent, which exists within
any business, is a fundamental way
that every person can use to enhance
the service and support a company
provides its clients.
At Lloyd’s Register Energy, I am
proud of our employees because thanks
to their team work and efforts, our
business won the 2014 British Quality
Foundation award for our Global Energy
Transformation program, which has
driven positive change inside and
outside of our business.
Challenges for the Industry
Oil prices are one of the most pressing
challenges of our industry today. The
industry is precariously balanced
between long-term success and failure,
and the choices that we make in the next
few years will determine whether it has
a future or not. Technical innovation can
no longer be an afterthought for business
or government; it must be central to any
organization’s strategy for sustainable
growth and market leadership.
My appointment as chairman of
the Industry Technology Facilitator
(ITF) group could not have come at a
more interesting time for technology
development and I look forward to
John Wishart leads the energy business of Lloyd’s Register.
Before joining Lloyd’s Register in 2011, Wishart was the
president of GL Noble Denton. He began his career in
technical, project, and leadership roles in the upstream and
downstream sectors, first with John Brown and then with BP.
He later joined Genesis Oil & Gas Consultants, which was
later bought by Technip, and Wishart became the president
and chief executive officer for Technip. In 2014, he was
appointed as the chairman of the Industry Technology Facilitator, a not-for-profit
organization, driving technology development and collaboration within the oil and
gas industry.
10
ensuring that ITF continues to play a
fundamental role in helping to advance
the implementation of new technologies
in the energy industry.
Even in an industry as regulated
as offshore oil and gas exploration,
there is always room for improvement.
Identifying these opportunities is best
accomplished by adopting a holistic,
rather than prescriptive, set of safety
regulations that focus on technology
as well as training, taking into account
the roles that equipment, systems,
processes, and people play in building
and maintaining a safety culture.
Recently, we have seen the debate
gather momentum on how the industry
needs to improve enhanced oil recovery,
with aspirations of moving from 40%
to 70% on recoverable reserves. Our
global research (the Lloyds Register
Energy Technology Radar survey) has
helped to draw out these key issues and
trends from personnel in the oil and gas
industry:
1. Innovation is drawing on a range of
technologies rather than any single
breakthrough.
2. A variety of technologies that
look set to have a high impact
in the coming years are related
to extending the life of existing
assets—enhanced oil and gas
recovery.
3. The near-term effect of automation
on remote and subsea operations
is identified as firms seek to cope
with challenging environments.
4. High-pressure/high-temperature
drilling and multistage fracturing
are also expected to have a major
impact, but are expected to be
fully deployed from 2020.
Going forward, technology will be
an enabler. If you look at the business
challenges we face today—the issues
around safety, environment, and costs—
you realize that the industry needs
to embrace technology even more.
Collectively, we need to look harder
at technology to help solve many of
those issues.
The Effect of Oil Price Drop. The
current price environment is very much
like a severe stress test to determine
which companies have their finance and
operations in order. Those that spent
too much to lease equipment and plant
to drill or have high operating costs are
most likely to suffer. If prices drop lower
and stay there into next year, providers
of drilling services and oilfield gear will
need to cut prices to retain customers—
moves that will help preserve oil
company margins; operators will
demand higher levels of integrity from
their contractors on equipment, systems,
and personnel.
Crew competence and specific
training to reduce downtime and the
heavy costs associated with equipment
failure will be of critical importance
to tomorrow’s winners. Manufacturers
will have to review their equipment
designs for functionality and failure
and make adjustments based on
new requirements.
One of the difficult questions
to address is how to find the best
strategy to remain relevant and hedge
any job-loss risk during downturns.
One of the key factors is competition.
Oil and gas companies affected by the
oil price drop have strong incentives
not to pullback on drilling activities.
These companies will be reluctant to
let go of their core talent and especially
their highly trained and experienced
wellsite employees.
Another issue is how to win the
war for talent in the next decade.
Increasingly, work is ceasing to be a
place and more a state of mind. For
large numbers of people it can happen
at any time of day and in any place.
Executives who understand this and
equip their organizations to survive
in this new world will be the ones
still leading successful oil and gas
companies in the next 30 years.
How much inflation do I believe is
baked into current oilfield service costs?
How much room do producers have to
lower their capital and operating costs
in the near term? You can answer that
question by asking: what will be the
global demand for power? If there is
a consistent demand for more power,
there will be demand in the energy
sector to deliver sustainable and robust
energy supply through engineering
expertise and independent technical
assurance. If the present conditions
hold, then efficiencies have to be
looked at without downgrading on
safety issues.
Outlook for Young Professionals
The use of data is going to change
how we do things in the future. But
it will mean new ways of working,
new collaborations, and our thinking
about different disciplines. Chemical
engineers will work with civil and
electronic instrumentation engineers,
working with mathematicians looking at
algorithms and using statistical analysis.
There are different mindsets across the
industry and it is going to require very
different thinking to create the smart
and sustainable oil and gas industry
of tomorrow’s world.
Our new generation of engineers,
in particular, have had experiences
as customers, which influence their
expectations in other business
dealings, such as their interactions
with their employers. This means
that digital communication
capabilities are becoming a key
weapon in recruiting and retaining
talent as well. Gone are the days
when an employee enthusiastically
received their new work laptop and
mobile phone. Today’s employees more
often than not have more information
communications technology at their
personal disposal than they are given
at work and information technology
departments are increasingly seen as
a limitation to their needs rather than
an enabler.
Organizations must understand
the best way to enhance communication
capabilities for their employees. For
most companies, this will not involve
handing out tablets or iPads to each
employee, but it should involve,
at a minimum, setting up internal
social networking and knowledgesharing sites. This approach will also
increase productivity as processes
previously requiring several
stages are completed in one or
two stages.
Likewise, organizations
need to look at the “complete”
package which they offer workers.
Reward is part of this—but what
employees are engaged with,the
environment in which they work,
and the opportunities for growth and
development are fundamental. There
is a clear trend that the engineers of
tomorrow are less purely motivated
by the sole financial rewards,
and the ethics and the ethos
of an organization are
equally important. TWA
Part 2: Judith Dwarkin, ITG Investment Research
As energy in all its forms is
essential to both economy and
life in general, the challenges
associated with finding, harvesting,
distributing, and using it efficiently
and responsibly are enduring. And
whether the current downturn in
the global oil market is, or is not, a
watershed moment, it is important
to remember that as an industry
professional you have been presented
with a massive summons to action, which
also comes with a massive opportunity
to shine.
I was raised in Fernie, British
Columbia, Canada, a small coal mining
and lumber town in Western Canada
well acquainted with commodity cycles.
Vol. 11 // No. 2 // 2015
11
Pillars of the Industry
After completing my undergraduate
and master’s degrees, I travelled
to Australia on a Commonwealth
scholarship to pursue a PhD in natural
resource economics.
During my academic career, I
became interested in public policy
and commodity markets and on
returning home to Western Canada
after graduating, I was fortunate to find
a way to pursue both these topics at the
Alberta Department of Energy. At the
time, the provinces and Canada’s federal
government were in the process of
dismantling a plethora of energy policies
and regulations that imposed various
types of controls on domestic oil and gas
upstream development and markets, as
well as internal and external trade. This
period of deregulation was a dynamic
and challenging time to work on energy
policy and, as it turned out, a great entry
point for my career in the industry.
One of my first assignments was
to help construct the oil and gas price
forecasts the Alberta government
used to develop its annual operating
budgets—a rather fraught task, and
equally fraught today.
Challenges for the Industry
It seems to me that through successive
episodes of oil and gas price crashes
and recoveries in the past few decades,
the industry has rebuilt itself a bit
smarter each time, making it better
able to ride out the next set of twists and
turns on the commodity roller coaster.
I have experienced four major oil price
collapses during my career in the
industry and cannot say that any specific
technical or analytical skill set is better
than the other at weathering the storm.
At a minimum, understanding exactly
what is required of you in your job is
essential, as obvious as this sounds.
While you, of course, are expected to
make a positive contribution to your
organization in the best of times, you
need to do this in spades during the
worst of times.
An irony in the oil and gas industry
is that one of the biggest tasks that
comes on the heels of the recoveries
that follow the downturns is the need
to rebuild depleted ranks of skilled
and knowledgeable staff. The degree
of technical specialization within the
industry tends to make this very hard to
do, particularly when previously laid-off
employees have since redeployed to
other sectors. But as I mentioned, I think
the industry is getting smarter about
managing this. As well, I believe a better
understanding of the nature of oil and
gas markets today is bringing a longerterm perspective to positioning for the
cyclical and structural forces at work in
these markets. Most people now realize
that making good decisions takes a more
nuanced approach than simply adopting
a point forecast or extrapolating today’s
situation into the future.
Other challenges for the oil and
gas industry in recent years have
come on the regulatory front. From
the wellhead to the tail pipe and
burner tip, environmental standards
and regulations have become more
numerous and more stringent.
Objections to these standards and how
regulators apply them are proliferating
Judith Dwarkin is the chief energy economist at ITG
Investment Research in Calgary, Alberta, Canada. ITG
Investment Research was formerly known as the Ross Smith
Energy Group. Prior to joining Ross Smith, Dwarkin was
senior vice president for Global Energy at the Canadian
Energy Research Institute where she managed the domestic
and international research programs pertaining to crude oil
markets and prices. Before that, she was a managing director
with the Alberta Petroleum Marketing Commission, being responsible for oil and gas
market analysis and energy regulatory interventions on behalf of the Alberta
government. Dwarkin holds BA, MA, and PhD degrees in economics.
12
from interest groups previously
much less active in this arena. As a
consequence, the regulatory process
has become more complex and timeconsuming and, to some extent, more
unpredictable. Inevitably, this has
also resulted in decisions about largescale, and sometimes more innocuous,
energy projects becoming very
politicized—always a scary proposition
to an economist!
Outlook for Young Professionals
I have no doubt the energy industry will
continue as an engaging and dynamic
place for young professionals to craft
their careers. As with any profession,
however, doing well will take effort and
perseverance—as well as a dollop of
good luck and good timing.
Being able to think critically is
important. Having the analytical tools to
make sense of reams of data is essential.
Learning how to distinguish what is
interesting from what is relevant is
basic—fortunately, this task gets easier
with experience.
Learning how to communicate
your thoughts and findings clearly and
professionally is vital. Endeavoring
to learn as much as you can, as fast
as you can, and figuring out how
to apply it in your job is a way to
stand out.
Paying attention to what your boss
pays attention to is smart; anticipating
what he or she might want to pay
attention to is smarter. And summoning
an ounce of courage from time to time to
take a chance and do something that is
daunting for you is necessary, if you wish
to move forward.
Lastly, regardless of your area of
expertise within the energy sector, if
you find yourself in a leadership position
one day, you doubtless also will find
yourself having to think about issues
and make decisions incorporating the
perspectives of not just your own, but
several different disciplines—including
economics. When you get to this point,
let me know. TWA
Economist’s Corner
Commodity Price Cycles:
Explained by an Expert
Gürcan Gülen, University of Texas at Austin
Oil and natural gas are the lifeblood
of modern economies. Together, they
account for close to 60% of global
commercial energy consumption.
Even in future scenarios with a high
penetration of alternative energy
sources or technologies, oil and gas are
expected to maintain a share of about
50% by the middle of this century; more
business-as-usual scenarios forecast a
share of 60% or more.
The transportation sector depends
on oil products such as gasoline,
diesel, bunker fuel, and jet fuel almost
exclusively. The ability to travel and
ship goods are the key ingredients
for a successful economy; the lack of
transportation infrastructure or its low
quality has often been a major roadblock
for emerging economies to attract
investment. It will be difficult and timeconsuming to switch millions of vehicles
on land, sea, and air to alternative fuels.
None of the alternatives, including
biofuels, electric cars, and fuels derived
from natural gas, appears to be ready
to replace oil products in necessary
scale although they are certainly
making progress.
What is the Interplay
Between Oil, Natural Gas,
and Alternatives?
Natural gas is an important feedstock
in many industrial processes such as
methanol or fertilizer plants, but the
growth in gas use has come primarily
from the electric power sector, where it
has been replacing oil and other fuels
(primarily coal) in many countries, in
addition to meeting new demand growth.
In some markets, more than half of the
electricity is generated in gas-fired
power plants. The share of natural gas
in power generation is expected to
increase in most countries as countries
try to lower their emissions and as more
gas resources are proven and developed
across the globe.
The fact that gas-fired power plants
are relatively cheap and quick to build
has been and will likely continue to be
a key driver of this transition to natural
gas in the electric power sector. Another
driver is the shipping of natural gas in
liquefied form, or LNG, as it facilitates
the increased use of gas in more markets
around the world. The number of LNGimporting countries and regasification
Gürcan Gülen is a senior energy economist at the Bureau of
Economic Geology’s (BEG) Center for Energy Economics
(CEE) at the University of Texas at Austin, where he
investigates and lectures on energy value chain economics
and commercial frameworks. He has been working in BEG’s
interdisciplinary team to assess shale gas and oil resources
in the US and CEE’s natural-gas demand assessment in the
electric power, industrial, and transportation sectors. Gülen
has worked on oil, natural gas, and electric power projects in North America, South
Asia, West Africa, and the Caucasus among others, focusing on the economics,
policy, and regulation of resource development and delivery, and power market
design. He served in the US Association for Energy Economics (USAEE) in various
positions and was the editor of USAEE Dialogue for several years. Gülen is a USAEE
Senior Fellow and a member of SPE, American Economic Association, and Gulf
Coast Power Association. He received a PhD in economics from Boston College and
a BA in economics from Bosphorus University in Istanbul, Turkey.
capacity tripled while the number of
LNG-exporting countries and volume
of trade more than doubled since the
early 2000s. The low natural gas prices
in the US in recent years, mainly a result
of the “shale revolution,” encouraged
many LNG-export projects; however, low
oil prices reduce the competitiveness
of these projects. Construction at the
Sabine Pass terminal started in August
2012, and Cameron and Freeport in
late 2014. Others might be delayed or
canceled altogether.
The increasing shares of alternative
technologies, including renewables
such as wind and solar, and the possible
resurgence of nuclear power generation
are often seen as threats to the market
share of natural gas. However, the
capital cost of wind, solar, and nuclear
remains high relative to that of gas-fired
plants. In addition, wind and solar are
intermittent sources of generation, which
limits the share of these technologies
in making a power grid operate within
the reliability standards. Storage of
generated electricity can mitigate the
problem of intermittency. There are
several storage technologies under
development and some are commercial
or near-commercial projects. However,
the sector is still in its infancy and there
have been technology and commercial
failures. Once commerciality is proven,
developing enough capacity to matter for
the market shares of different fuels will
take time.
Although there is a level of dichotomy
between oil-exporting and -importing
countries, generally speaking, “lower”
oil and gas prices provide a boost to the
world economy. High oil prices triggered
recessions in the past, especially in
those countries that depend heavily on
oil imports. Often forgotten, however,
is the fact that prices were high at least
partially because of demand increasing
Vol. 11 // No. 2 // 2015
13
Economist’s Corner
faster than supply, and that demand
started increasing faster because oil was
“too cheap” for some period.
Globally, the price of natural gas
delivered by pipelines or as LNG
is linked to the price of oil through
formulas. The oil price could be a
reflection of a basket of crudes, or the
price of an oil product such as fuel oil.
This pricing is a historical remnant of the
long-term contracts needed to develop
long-distance pipelines and LNG value
chains but still reflects the energy
security concerns of major importers
such as Japan, which is dependent on
imports for almost all of its energy needs.
High oil prices hurt such importers more
as natural gas price also increases,
whereas low oil prices help their trade
balance more because gas imports also
cost less.
In the US, natural gas and oil prices
are mostly independently determined
in their own markets, even though there
are complex and indirect linkages to the
prices of byproducts such as ethane and
propane, the cost of drilling services,
and the substitution of fuels. For example,
current low oil prices have led to a drop
in drilling activity, which can possibly
lead to service companies reducing the
fees for their rigs and related services,
as well as suppliers of pipes and other
field equipment decreasing their prices.
This reduction in upstream costs might
encourage more gas wells to be drilled
at lower natural gas prices.
Why did the Price of Oil Spike
in 2008 and Remain High
Between 2009 and Late 2014?
These boom-bust cycles result primarily
from the inherent time inconsistency
between business cycles and the
investment cycle of upstream projects,
which can be as long as 10 years for
conventional projects. The rapid and
large economic growth experienced in
“emerging” economies, led by China,
in the early 2000s led to a significant
increase in demand for oil products,
but the industry was not ready to supply
the required amounts. This “excess
demand” situation resulted in increasing
prices, which culminated in a significant
14
spike in the first half of 2008. The
economic crisis that hit the world in the
second half of 2008 was partially caused
by these surging energy prices in
addition to excesses in financial markets
and fundamental macroeconomic
weaknesses in many economies, mostly
in Europe. The ensuing destruction of
demand for oil coincided with increased
production capacity, which was the
industry’s response to rising prices
earlier in the decade. This “excess
supply” situation led to a price collapse
in 2009. However, oil prices recovered
by 2010 and remained relatively high,
albeit not as high as in early 2008, until
collapsing again in late 2014.
Clearly, there are factors other than
the demand and supply fundamentals
that impact the price, although eventually
these fundamentals govern the price
formation. In the short term, even the
demand and supply fundamentals are
not fully transparent. Moreover, market
players have asymmetric information
regarding these fundamentals such as
the production capacities of different
countries (especially the “spare”
capacity in the member countries of the
Organization of the Petroleum Exporting
Countries—in essence, Saudi Arabia),
consumption levels and demand growth
in various markets, amount of crude oil
and products in storage, and energy and
environmental policies across the world.
The great majority of the world’s
oil resources are controlled by
governments, often via national oil
companies (NOCs). Their data are often
not publicly available, or if available,
they are untimely, insufficient, and
questionable in quality. This paucity
of data regarding resources and NOC
operational and financial performance
is probably one of the most significant
challenges facing analysts trying to
understand long-term prospects of
the global oil supply. Government
policies to subsidize petroleum
products inflate demand in many
countries; during economic crises,
many governments cannot afford the
subsidies, the reduction of which further
contributes to price cycles. Otherwise,
subsidies induce black market activity,
which can be significant in parts of
Africa, the Middle East, and Southeast
Asia, accounting for large volumes
when aggregated.
In addition, geopolitical factors
and financial trading of “paper
barrels” contribute to volatility and
cycles. For example, among the most
commonly cited reasons for the price
spike of 2008 is the increased amount
of money invested in commodity
trading by relatively new players
in this space (institutional investors
such as hedge funds and index
funds). Some also pointed to several
important geopolitical developments
including Venezuela stopping
supplies to ExxonMobil in February
2008, pipeline bombings in Iraq in
March 2008, labor strikes in Nigeria
and Scotland in April 2008, militant
attacks on facilities in Nigeria from
April through June 2008, and reports
of declining Mexican exports. Such
outages can have a disproportionately
large impact depending on the
quality of crude production lost, given
refinery specifications and emission
requirements for fuels in various
markets. For instance, lost production
of light sweet Nigerian crude could not
be readily compensated by heavy sour
crude from Saudi Arabia even though the
latter’s production capacity is sufficient.
Also of note are macroeconomic
policies and developments. In particular,
some analysts pointed to expansionist
monetary policies and associated
low interest rates as well as the weak
US dollar as factors contributing to
the rise of the oil price during the
period leading up to the spike of 2008.
Expansionist policies fuel demand, and
the weak dollar forces producers to
raise their prices to maintain revenues in
purchashing power terms. Consistently,
some believe that the increased strength
of the dollar is contributing to the price of
oil remaining low in early 2015.
The same factors are also behind the
quick recovery of the oil price after the
2009 collapse. Geopolitical concerns
include the string of upheavals in the
Middle East (commonly referred to as
the Arab Spring), the collapse of the
TWA Interview
Continued from page 7
ancien régime in Libya, the Russian
aggression in Ukraine, continuing
problems in Nigeria and Venezuela, and
violence in Syria and parts of Iraq. With
such uncertainties, trading tends to add
a risk premium to the price. The cost of
upstream operations has also increased
in the 2000s along with the price of oil
and increasing development activity.
Other than a brief period of decline
after the 2008 crisis, the upstream costs
continued to rise. This is partially a result
of increasing competition for services
and partially the intrinsically higher
cost of developing tar sands and tight
oil plays. Eventually, though, increasing
production (especially in the US
unconventional space) led to an excess
supply as the European economies
continued to struggle and emerging
economies, including China, started to
falter. Hence, the collapse of the oil price
in late 2014.
Although many of these countries
continue to grow, the growth rates are
much lower than what they used to be in
the early to mid-2000s. Many countries
have also been adopting policies to
increase fuel efficiency and conservation
by switching to alternative fuels and
technologies. It is too soon to tell how
much of an impact these policies will
have (and the current low oil price
environment certainly reduces the sense
of urgency for their implementation),
but some analysts believe such
transformation could eventually lead to
a leveling of global oil demand. In the
shorter term, however, the low price
will induce increased consumption and
rationalization in the upstream sector,
which will bring the market to a new
equilibrium at a price higher than the
recent bottom-of-cycle level. In the
meantime, spikes due to significant
geopolitical incidents or accidents
cannot be ruled out.
For a more detailed discussion of the
oil market mechanics within the context of
the 2008 spike, please see http://www.
beg.utexas.edu/energyecon/thinkcorner/
Think%20Corner%20factors%20
impacting%20oil%20price.pdf. TWA
What is the impact of the current
volatile oil price on shale,
deepwater, and enhanced
oil recovery?
People are going to try to defer
deepwater capital, but you have to
keep enhanced-oil-recovery projects
running, because if you are doing a
steamflood/ carbon dioxide flood,
for example, you cannot stop. The most
reactionary resource plays to the price
of oil are shale and exploration. Shale
plays can simply lay down rigs relatively
quickly, and that is what they are doing.
The exploration business, as it pertains
to finding a new conventional oil field,
is hard to begin with, and everyone
simply defers the relatively big
capital expenditure for long-cycletime exploration projects at these
low oil prices.
Which shale basins are profitable
under current economic situations?
Will the breakeven price for shale
E&P change dramatically in the
future?
The good spots in the Permian Basin
can make money at USD 60/bbl, and
maybe even lower. The Bakken needs a
higher oil price to be profitable. If prices
stay low, will service costs drop? By
how much? Will that bring the
breakeven down?
Where do you think the most future
potential lies in the energy industry?
The North American industry looks
really promising for a good long while.
Secondly, the knowledge acquired from
North American resource plays will
expand to other parts of the world. Two
examples are the Vaca Muerta shale
in Argentina and coalbed methane in
China. There are a lot of places in the
world where oil and gas exist; it just has
to be accessed.
Another potential for the industry
is the migration of the global energy
economy to natural gas. Today, oil is
used more or less for transportation
but you could run a car on natural gas.
The conversion of the global economy
to natural gas would not be that hard to
do and it has environmental benefits;
natural gas is plentiful. It does not
have to be a revolution, it can be
an evolution.
What advice can you give young
professionals in the oil and gas
industry, especially those interested
in the finance side?
Technical expertise is incredibly
valuable. Invest in your human capital.
Be deliberate and thoughtful in that
investment. Have a plan. Take a job
to work in an environment where you
are going to learn the most and be
challenged. If you do that consistently,
you will wake up one day and you
will know a lot, and you will have a lot
of opportunities.
Any advice to young professionals
during this time of volatile
commodity prices?
Think about how to make the projects
you are working on today more
efficient. There is a lot of benefit to a
low-price environment because you
learn how to be more efficient. Human
capital is too scarce in the industry to
see massive layoffs yet. Some people
will use this as an opportunity to
“upgrade,” but I do not foresee big
layoffs. Companies are pretty lean
in general. Everyone is just going to
hunker down. TWA
Vol. 11 // No. 2 // 2015
15
HR Discussion
Current State of the Industry:
A Recruiting Agency’s Perspective
Bodie Nowak, Parkwood International
The day after Thanksgiving, the oil and
gas industry was dealt a crushing blow.
Already facing a downward market, it
was then met with news that members
of the Organization of the Petroleum
Exporting Countries had collectively
made the decision to not cut production,
with Saudi Arabia leading the agenda.
The remainder of last year was
throttled by plummeting share prices
from the publicly traded exploration
and production (E&P) companies and
the continuation of price slides on the oil
indexes, both West Texas Intermediate
(WTI) and Brent. Through December
and into the new year, companies were
faced with an unfortunate reality, which
was to cut capital expenditures in order
to weather the storm of uneconomic oil
prices, an uncertain rebound forecast,
and a correction to profitable levels.
In an opinion piece, “Who Will Rule
the Oil Market?,” published in The New
York Times on 23 January, renowned
analyst Daniel Yergin wrote, “By leaving
oil prices to the market, Saudi Arabia
and the Emirates also passed the
responsibility as de facto swing producer
to a country that hardly expected it—the
United States. This approach is expected
to continue with the accession of the new
Saudi king, Salman, following the death
on Friday [23 January] of King Abdullah.
And it means that changes in American
production will now, along with that of
Persian Gulf producers, also have a
major influence on global oil prices.”
Commenting on it, Reed Rogers,
Parkwood International’s executive vice
president of downstream refining and
chemical manufacturing practices, notes
that, “The US does not have a cartel of
oil producers who will act in concert,
so expecting the US to act as a swing
producer who will lower production to
increase price is not realistic. What is
more likely is that lower oil prices will
weed out higher-cost US producers,
which will be a random, rather than
concerted, event. In either case,
higher prices would be the outcome.
However, we don’t see many US
producers being ‘weeded out’ so far so I
agree with Barclay’s latest survey that a
USD 50/bbl price will be maintained for
much of 2015.”
Low Oil Prices Lead
to Leaner Companies
The direct and unfortunate effect of
uneconomic prices and 40% to 50% cuts
in capital spending is that companies
will need fewer employees. In the first
quarter of the year, we have seen layoffs
from Schlumberger (estimated 9,000),
Weatherford (8,000), and Baker Hughes/
Halliburton (7,000) on the service side,
and Noble Energy (220), Chaparral (121),
Sandridge (256), and Apache in the
operating category. Others have closed
Bodie Nowak is senior vice president of oil and gas–
upstream/midstream recruiting business division at Parkwood
International and leads its investment banking and private
equity practices. Nowak and his team are focused on building
long-term business relationships with leaders in the E&P
industry by engaging senior level management and assisting
them in filling critical positions through market and industry
trend analysis.
16
regional offices, such as SM Energy in
Tulsa and Laredo Petroleum in Dallas.
Many others have similar circumstances
and comparable stories.
Many, including our analysts at
Parkwood, believe we saw the bottom of
prices when WTI fell below USD 45/bbl.
Despite this, there will continue to be
layoffs and shutdowns through the rest of
the year even if prices improve to USD
65/bbl, largely considered an economic
price for most oil plays in the US.
Our business is predicated on
contracting with oil and gas companies
who have urgent and strategic hiring
needs and facilitates the efforts to search,
vet, introduce, and onboard the most
qualified individuals for those positions.
Since November, we have seen
the majority of our resource play/
unconventional shale clients cease all
hiring for their organizations. Most
companies have significantly decreased
their needs for new employees and many
others, as aforementioned, have already
gone through initial rounds of layoffs.
Drilling and Completion
Budgets Affected Most
Due to capital constraints, the lion’s share
of expenditures that have decreased are
drilling and completion (D&C) budgets.
Oil shale D&C costs can range from
USD 5 million per well up to USD 10
million per well on average. Resource
play development is fiscally demanding,
which can create difficulty for many
operators in a USD 50/bbl market. The
cost of drilling and completing a well
significantly diminishes any positive
internal rate of return. In addition, many
shale operators have taken on significant
debt in order to increase their drilling
efforts while chasing production goals.
The employees most affected in
the current state of the industry are
the professionals tied to D&C projects.
Last year, the US rig count was as high
as 1,931 and as of 2 April, it was down
to 1,028. It would be shocking if that
number did not continue to decrease
through the middle of the year and
maybe even into the third quarter.
As a result of the decline in rig
count and drilling activity, our unit has
been inundated with calls and inquiries
from drilling engineers, completion
engineers, operations geologists, inhouse landmen, drilling supervisors, and
countless field operations personnel tied
to the rig lines who are now without work
and seeking advice and assistance.
We witnessed a similar situation in
2009 when the US rig count dropped
from its height of 2,031 in 2008 to 876 in
June 2009. Like then, it is now difficult
to help many who were sidelined in
the wake of the slowdown. Parkwood’s
agenda in these circumstances is to
make sure we are following the financial
groups that are associated with the
upstream market in order to be aware
of any and all capital influence activity
that might suggest a need for a team of
(D&C) professionals.
Follow the Money to Find the Jobs
With pricing decreases from the
service companies and discounted
acquisition opportunities, we continue
to hear a buzz from private equity
groups and investment banks about
being opportunistic. We have also
had conversations with operators that
received backing last year and are now
seeking purchases, which will lead to
development through the drill bit.
For example, a Bloomberg article
in January reported that Blackstone
and its subsidiary, GSO Capital
Partners, have “committed as much
as USD 500 million to fund oil and gas
development for Linn Energy LLC…
Under the 5-year agreement, Blackstone
would fund drilling programs at locations
selected by the Houston-based Linn for
an 85% working interest in the wells.”
We reached out to Linn immediately
to promote our services for hiring needs
that would likely result from the large
capital influence from GSO. The same
article noted that Blackstone, Carlyle,
KKR, and Apollo had recently raised
USD 15 billion in funds for energy
investments. If we follow the money, we
will typically find the jobs.
In 2010, during the recovery from
the 2008–2009 price swing, we began
seeing significant investments from
financiers, and operator budgets were
directed toward the gas-rich Marcellus
Shale window of the Appalachian
Basin. In turn, our company focused
business development there and
successfully filled the largest percentage
of our 2010 jobs in that part of the US.
When gas prices started sliding and
production lessened demand on the East
Coast, we decreased our activity there
and looked for diversification in other upand-coming plays such as the Eagle Ford
and the Bakken.
A large portion of our work in the
current market is with private E&P
operators that leverage conventional
portfolios, work within cash flow, and
carry little to no debt. In this case, there
is no real geographic preference given
that conventional projects are still active
nationwide. For industry professionals,
in these cases, it is very important and
beneficial to be flexible with where
one will consider working—those
who restrict themselves to one city
will find far fewer options and much
more difficulty.
Changing Market Type
Another result of the down market is the
180-degree transition from what is called
a “candidate-driven market” to a “clientdriven market.” In a candidate-driven
market, companies are faced with the
reality that the majority of prospective
candidates are currently working, wellpaid and appreciated, and disinterested
in considering a new career option. If
someone is open to making a move, he
or she will typically meet with five to
eight companies and consider three to
four job offers simultaneously.
What we have seen over the past
few months is that companies now
have only five to eight open positions
and are not usually in competition with
more than one or two other companies.
This is the direct result of layoffs or
candidate concerns about the stability
of their current employer. Things will
likely change back to a candidatedriven market, but for post-2006
graduates, the job market will still
be competitive.
Robert Chase of Marietta College
shared his compilation of data on the US
petroleum engineering graduates from
1972 to the current year:
1. Early 1980s had the highest
graduation numbers ever, with
1,529 new college graduates in
1986, which is still the highest
to date.
2. The downturn in the late 1980s
through the 1990s decreased the
graduate numbers drastically,
and in 1998, only 200 petroleum
engineers graduated in the US.
3. The numbers ramped up
after 2006 with the success of
hydraulic fracturing such that
1,527 engineers graduated
per year by 2014, making the
market much more saturated for
younger engineers.
Going forward in 2015, it will
likely get worse before it gets better.
Companies’ net present value (PV10) will
decrease over the next two quarters and
we will certainly see additional Chapter
11 filings, layoffs, and a decrease in
hiring activity. The PV10 is the present
value of a company’s estimated future
oil and gas revenues, after the deduction
of estimated expenses, discounted at an
annual rate of 10%.
The horizon, however, gives signs of
optimism. The cash-heavy private equity
and investment banking communities
are poised and positioned to take
advantage of the acquisition market and
it is certain that we will see an influx
of capital, with billions of new dollars
backing E&P initiatives.
For industry professionals, it is very
important to remember that the only
sustainable competitive advantage that
an organization can have is the quality of
its people. Great companies understand
that great talent is not expensive—it
is priceless. TWA
Vol. 11 // No. 2 // 2015
17
Forum
The Sky is Falling—Again
Oil Price: Biggest Factor Affecting the Industry
Euan Mearns, Energy Matters; Jared Wynveen, McDaniel & Associates Consultants; and James Fann, Cenovus Energy
The slumping oil price is the talk of the
industry. From field hands and technical
teams getting laid off to slowing down of
projects until 2016 or later, the oil price is
affecting many in the industry. The Way
Ahead Forum section editors sat down
with stakeholders from different sections
of the industry to get a better picture of
what the recent oil price changes mean
to business.
What would you define as “low” in
oil prices?
Euan Mearns (EM): This is a good
question. The best answer I can suggest
is that the price is low when it falls below
the level where companies can make a
profit. The corollary would be that the
price is high when companies make
large windfall profits. Since different
companies and states have different
operating costs and these operating
costs vary with time, there is no unique
definition. But I believe at USD 50/bbl
few, if any, companies are making a
profit, hence we may safely assume that
USD 50/bbl is low.
Jared Wynveen (JW): Generally
speaking, I think a low oil price is one
in which we can no longer sustain
continued development and expansion
of our resources. Depending on the play,
low pricing might be anywhere from
USD 40/bbl (WTI) to USD 80/bbl, but
ultimately it all depends on the specifics
of the operator, the reservoir, and the
product quality.
James Fann (JF): Energy prices
have always historically moved in
cycles. Instead of thinking of a low
oil price as an absolute number,
for Canadian energy producers, I
would suggest a low oil price would
be one such as to slow down and
potentially stop the development of
new projects or expansions that would
increase the oil supply. This price would
cause supply to either decrease or
remain flat.
Have you seen ups and downs in
price in the past? How has it affected
your business?
EM: In 1998, the oil price fell below
USD 10/bbl. I was running a small
geochemistry company at the time and
it was incredibly hard. I had to lay off
10% of my staff and cut costs to the bone.
We survived, but for a number of years
found it hard to make a profit. One thing
the industry should anticipate is a delay
between the price going back up and
increased activity that may lag price by a
year or 2.
Euan Mearns is the editor for the Energy Matters blog at
euanmearns.com and an honorary research fellow at the
University of Aberdeen. His mission is to understand the
various components of how the Earth energy system works and
to educate politicians, policy makers, and the public on energy
matters so that better choices can be made. He was a founder
and managing director for Isotopic Analytical Services, and an
editor at TheOilDrum.com. Mearns earned a BS in geology
and a PhD in isotope geochemistry from the University of Aberdeen.
18
JW: Although I have only been in the
industry since 2006, McDaniel has
been around since 1955 and has been
through many commodity cycles. We are
happy to say that after all those cycles
we are still here, but similar to any other
service company in town, downturns in
commodity pricing have a big impact
on the success of our business. To that
end, even though we do not produce oil
or gas, we are nevertheless inextricably
connected to the broader market cycles.
JF: The oil and gas business typically
moves in cycles and does change its
level of investment in future projects
depending on a company’s long-term
outlook on prices, and its financial
position. This is reflective of past trends
and certainly current trends.
What do you think will be the local,
national, and global effect of low oil
prices?
EM: In Aberdeen, where I live,
companies are already laying off
thousands of workers. This applies
equally to the operating companies and
service industries. As the economic
impact of this on the local economy is
felt, local businesses will experience a
downturn and the price of property will
likely fall.
The North Sea is now a very mature
offshore province and the record high
investment levels of recent years will
dry up. It is to be expected that future
production will be lower than it might
have been. The UK will inevitably
become more reliant on imported oil and
gas. Elsewhere in the UK, consumers
will celebrate lower energy prices for a
while, and the overall impact on the UK
economy will likely be positive.
At the global level, those countries
that are net importers of oil and gas
will benefit from lower prices but the
exporting countries, many of which are
heavily dependent on revenues from
oil and gas, will experience extreme
economic hardship. This can have a
destabilizing effect in certain countries
like Russia, Iran, Algeria, Nigeria,
and Venezuela. It is a bad thing for
international security to have these
countries destabilized.
JF: Low oil prices translate into lowercost transportation fuels, which have
typically led to a benefit for other parts
of the Canadian and global economies.
However, the energy industry is a huge
part of Canada’s economy, creating
thousands of jobs and providing billions
of dollars in economic stimulus, as
well as taxes and royalties to support
government spending. When oil prices
are low for an extended period of time, it
has a negative impact on the economy.
What are your views on oil prices
in 2015?
EM: The oil price is low for three
reasons. Weak demand stemming from a
slowing of growth in the world economy,
oversupply of expensive oil coming
mainly from the US and Canada, and the
fact that Saudi Arabia has relinquished
its role as a global swing producer.
The low price will stimulate demand
and will result in global production
capacity falling and these two processes
combined may be expected to result in a
strong price recovery at some point in the
future. Calling the timing of this recovery
is incredibly difficult. The oversupply
issue has momentum and it is not going
to rectify itself quickly. Hence, I believe
2015 will be a difficult year and the oil
price may stay below USD 60/bbl till the
end of the year. I believe we will see a
strong recovery toward USD 100/bbl
in 2016.
JF: Lower oil prices result in lower cash
flow, which places pressure on capital
spending. However, lower prices also
create opportunities to execute our
current capital programs with better
efficiencies and reduce some of the
inflationary pressures we have seen in a
higher-priced environment.
This industry is very resilient and
innovates when prices are low, so I
would expect that in the long term, a
lower-price environment could lead to
a fundamental shift in technology in the
higher-cost plays.
Do you feel that the low prices will
be sustained?
EM: The marginal barrels of oil that the
world is dependent upon are expensive
to produce compared with the easy oil
from supergiant fields that are becoming
a thing of the past. The world will have
to either adjust to having sufficient oil
to meet its needs and pay this higher
price or it will have to adapt to lesser
amounts of oil. My hunch is that we would
rather pay the higher price and I do
not, therefore, believe the low price will
be sustained.
JW: Long term, I don’t think lower prices
will be sustained. I think over time, the
market will find a new balance as highcost producers drop off capacity and
consumers pick up demand. There is
no better cure for low oil prices like low
oil prices.
JF: In various industry reports, the
marginal break-even price of oil
including a return on capital has been
estimated to be in the USD 60/bbl to
USD 75/bbl range.
Prices below that level would slow
down production growth, impacting
the supply side of the supply/demand
balance, which should cause prices to
rise again. Oil prices move cyclically,
so pricing in general will not likely stay
constant at any level over longer periods
of time.
What can make the oil prices go
back up?
EM: On the economic front, supply must
fall and demand must rise. Supply has
become inelastic and price is therefore
very sensitive to small movements in
either supply or demand. As a simple
rule of thumb, a 2-million B/D swing in
supply/demand translates to a USD 40/
bbl swing in price. Without market
intervention, volatility will rule.
However, I believe this issue may
be settled by events. For example, the
Organization of the Petroleum Exporting
Countries may decide to reverse the
current policy in its June meeting. Or
conflict in the Gulf countries may lead to
supply disruption.
JF: Oil and gas prices are a function
of supply and demand. For prices to
change direction from going down to
up, either supply has to be reduced, or
demand needs to increase.
How resilient is your business to lower oil
and gas prices? What is the break-even
oil price for your company?
JW: Given that many oil and gas
companies require external reserves
evaluations for corporate filing purposes,
a certain percentage of our business
is less affected by oil price volatility
Jared Wynveen is an associate with McDaniel & Associates
Consultants since 2006. Wynveen has been responsible for
evaluating numerous heavy oil and bitumen projects at various
stages of development. His primary focus over the last 7 years
has been the preparation of economic evaluations of oil sands
assets for the purposes of annual securities reporting, joint
venture agreements, and debt and equity financing. He also
provides technical and financial advisory services to foreign oil
and gas companies and financial institutions that are interested in oil sands projects,
both in Canada and worldwide. He holds a BS degree in mechanical engineering from
Queen’s University.
Vol. 11 // No. 2 // 2015
19
Forum
than many other service companies
in Calgary. That being said, advisory
work, reservoir studies, and other
nonessential evaluations are heavily
impacted when commodity prices
are distressed.
JF: Cenovus is in a relatively strong
position compared to our peers as we
continue to focus on reducing our cost
structures. We have a strong balance
sheet and a good commodity hedging
position, which will help us during
this low cycle in oil prices and allow
us to potentially take advantage of
opportunities during this time.
The break-even price for oil varies
depending on the asset. We use a WTI
supply cost to describe the oil price
required to earn a cost of capital return
on our projects. The supply costs for our
operating oil sands assets Foster Creek
and Christina Lake projects are in the
range of USD 40/bbl to USD 45/bbl WTI,
including a 9% return on investment.
Double your
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20
Is your business more affected by lower
oil price or lower natural gas price?
JF: In 2015, we have a good hedging
position which helps mitigate some of
the impacts of lower pricing. If you are
referring to the current lower price
environment, our business is impacted
more by lower oil prices as our largest
capital investments take place in our oil
properties. Although the business is
impacted negatively by a reduction in
the cash flow, it is influenced positively
by better labor availability and potential
reductions in costs of suppliers as
companies reduce their capital spending.
Are companies in your sector reactive or
proactive regarding oil prices, staffing,
and capital budgets?
JF: In late 2014, and early 2015 we have
seen adjustments [reductions] to the
budgets of many Canadian oil and gas
producers. It really depends on the
company and their financial position
as well as the types of assets that they
possess. For Cenovus, we manage
a portfolio of assets and understand
which areas can speed up or slow down
depending on the pricing environment.
Reactively, if there is a market
event outside of expected price trends,
companies will respond by adjusting
budgets and pace of development.
Proactively, companies use hedging
and manage their financial position
to be prepared for changes in
expected prices. Our oil sands assets
will produce for decades, so it is
important for us to recognize how
we can execute our longer-term
strategy by understanding how
our development is affected by nearterm pricing.
Do you have any advice to young
professionals preparing to enter the job
market at this time of lower prices?
EM: This is a bad time for young
professionals to be entering the job
market in the oil and gas industry. A
year ago the industry was crying out for
young engineers. Today, the industry
is shedding staff as fast as they can. My
advice would be more for the employers.
Have faith in the oil price making a
strong recovery in 2016 and maintain
graduate recruitment programs since
this is essential to the future viability of
the industry.
JW: Do not be picky and do not be
afraid to take a job out in the field if the
opportunity exists. Experience in any
facet of oil and gas, even if it is not in your
field of study, is better than no experience
at all.
JF: I don’t think I would give different
advice to young professionals entering
during a time of high or low oil prices.
I joined this company (via the legacy
company of Alberta Energy Co.)
when WTI was trading at USD 20/bbl
and steam-assisted gravity drainage
development was viewed as the
marginal barrel. I spent my early years
learning from experienced technical
staff how to solve problems to unlock our
future resources.
Whether prices are high or
low, I think young professionals
should have the patience to learn
technical skills from experienced
staff, and particularly in a lower-price
environment, work on solving problems
to reduce costs or increase the realized
pricing of the commodity which they
are producing. TWA
James Fann is the principal for integration of markets,
products, and transportation at Cenovus Energy, a Canadian
oil company. Fann started working with Alberta Energy Co. in
2001 and was a part of its transformation to Encana in 2002, and
subsequently to Cenovus Energy in 2009. He has worked in
both upstream and downstream, including in investor relations
and oil sands operations. Fann is a professional engineer and
holds a BSc in chemical engineering from the University of
Waterloo and an executive MBA from the University of Calgary’s Haskayne School
of Business.
SPE 101
Labels Are Not Always Bad:
Understanding SPE Technical Disciplines
Kristin Weyand, ConocoPhillips
Although we often describe ourselves
generally as “petroleum engineers”
to those outside the industry, we
wear a number of hats: production,
drilling, completions, reservoir,
facilities, and projects, to name a few.
Depending on your employer and the
size of your company, you may be a
jack-of-all-trades or a specialist in a
niche of the industry. When deciding
on training courses, conferences,
and symposiums to attend, or even
where to pose a question on the SPE
technical forums, it is important to
understand how SPE is organized into
technical disciplines.
On the membership and renewal
forms, SPE requires members
to designate a primary technical
discipline with an optional secondary
discipline. If your job requires you to be
multidisciplinary, you can also choose
from a large number of subdisciplines
that apply to your role. Designating these
disciplines helps SPE to tailor invitations
to conferences, workshops, and training
courses that you might be interested in.
If your job changes, make sure to update
your discipline preference in your profile.
SPE comprises six technical
disciplines, which are semiautonomous
and (mostly) self-governing. Each
discipline is led by a technical director,
who holds his or her office for a term of
3 years and is selected by a nominating
committee made up of members from the
discipline. The six disciplines (a question
almost always asked in the annual
PetroBowl competition) are Drilling and
Completions; Production and Operations;
Health, Safety, Security, Environment,
and Social Responsibility; Projects,
Facilities, and Construction (PFC);
Reservoir Description and Dynamics; and
Management and Information.
Technical disciplines change slightly
over time as the focus of the industry
shifts and technology advances. With the
approval of the SPE Board of Directors,
technical sections, which are groups
in which members can share ideas,
and develop projects related to their
technical interest, can be created to cover
these topics.
Several SPE publications cover
these six disciplines: JPT, SPE
Journal, SPE Drilling & Completion,
SPE Production & Operations, SPE
Reservoir Evaluation & Engineering, SPE
Economics & Management, Journal of
Canadian Petroleum Technology, and
HSE Now.
Oil and Gas Facilities, launched
in 2012 and the newest of the SPE
technical publications, is dedicated to
the PFC discipline. SPE members who
have designated PFC as their primary
or secondary discipline receive the
magazine for free (another good reason
to ensure that you have your discipline
preferences filled out in your profile).
If you are uncertain which discipline
your job falls into, a comprehensive list
of subtopics within the disciplines is
available at www.spe.org/disciplines/
discipline-coverage. The list may be
worth a perusal, as how the subtopics are
organized might surprise you.
Each discipline has its own Web page
(www.spe.org/disciplines) and brings
together conferences, calls for papers,
web events, and training courses that
you might be interested in attending as a
member of the community.
Six icons are used for the six
disciplines on the SPE website and
can help you search through the
plethora of SPE events by discipline.
More often than not, events will be
multidisciplinary and will show several
of the corresponding icons.
SPE technical disciplines also
promote networking and knowledgesharing among members. And the
easiest way to benefit from it is through
SPE’s online community SPE Connect.
When looking for solutions to specific
problems or for new contacts in your
field, check out the platforms on SPE
Connect. The discussion posts can be
valuable when facing a challenging
technical problem.
Although it may seem difficult to label
yourself with a one-discipline persona,
the reality is that you are (and should be)
multidisciplinary in your career. Rather
than a way to separate the membership
into isolated spheres, the technical
disciplines serve as a springboard from
which you can pursue knowledge and
networks that, quite often, cross the
organizational divide.
It all starts with a simple choice:
Which technical discipline are you? TWA
SPE Technical Discipline Icons
Drilling and
Completions
Projects, Facilities,
and Construction
Reservoir Description
and Dynamics
Management and
Information
Production and
Operations
Health, Safety, Security,
Environment, and Social
Responsibility
Vol. 11 // No. 2 // 2015
21
Discover a Career
Building a Career in Reserves Estimation
Ivo Foianini, Halliburton, and Jarrett Dragani, Cenovus Energy
The substantial reduction in global oil
prices has put the oil and gas community
in a challenging and yet vaguely familiar
position. It is once again reminded
of the effect oil and gas prices have
on companies working to profitably
exploit these resources. When there are
changes in prices, reserves estimation
can dictate the profitability an operator
can ultimately obtain.
Larry Mizzau, principal for reserves
and resources governance at Cenovus
Energy reflects on his 30-plus years
of experience in the industry and
shares his thoughts on how commodity
prices impact operators, reserves
consultants, and young professionals
(YPs) looking to establish a career in
reserves estimation.
What is reserves estimation?
Reserves estimation is a key step in
understanding an oil and gas company’s
resource base and the opportunities
it affords. It is found at the crossroads
between asset management and
financial stewardship. It involves the
estimation of remaining volumes of
hydrocarbons economically recoverable
from an oil and gas operator’s
subsurface assets using current
technology.
Given that reserves exist deep
in the ground, they cannot be
determined with absolute certainty
and, as such, can only be estimated.
To assist investors in understanding
this uncertainty, reserves estimates
are typically determined at different
confidence levels.
In Canada and the United States,
public operating companies must
disclose an updated estimate of their
remaining oil and gas reserves on
a yearly basis as part of their yearend financial reporting. Specifically
in Canada, operators are required
to disclose assessments prepared
or audited by independent qualified
reserves evaluators (IQREs) who can
be externally or internally retained by
the company.
What might a career in reserves
estimation look like for a YP?
A career in reserves estimation can
really take several different forms for a
YP. One might work for an independent
Larry Mizzau is principal for reserves and resources
governance at Cenovus Energy and is responsible for
Cenovus’ reserves and resources evaluation and disclosure.
Before this, Mizzau has held several positions in mergers and
acquisitions (M&A) at Gulf Canada Resources, Shell Canada,
Alberta Energy Co., and Encana, being responsible for the
coordination, evaluation, and closing of many large oil and
gas asset and corporate mergers, acquisitions, and
dispositions. Before his career in M&A, he was a reservoir engineer with Gulf
Canada responsible for early field development, specializing in subsurface data
acquisition, well testing, and reserves estimation. Mizzau graduated with honors
from the University of Waterloo with a BASC in chemical engineering.
22
evaluation firm or consultancy as
an IQRE, estimating reserves and
resources on behalf of an oil and gas
company, or work directly for the
oil and gas company as an internal
(but independent) qualified reserves
evaluator or in a coordinating capacity.
The coordinating role is more focused
on ensuring that the estimation of
reserves and resources and their
subsequent disclosure are completed
to proper industry standards and
comply with regulations governing
the disclosure of financial and other
oil and gas information by publicly
traded companies.
As a YP, working for a consultancy
generally means you will be working
under the leadership and guidance of
senior engineers and geoscientists,
typically performing detailed
analytical work. Over time, you might
find yourself working your way toward a
more senior role in the company where
you supervise the technical work and
economic analysis performed by junior
staff and manage client accounts and
business relationships.
Working for an operator as a
reserves professional means you
will more commonly be coordinating
reserves evaluation work, which
involves providing guidance to and
taking input from the IQREs, members
of the asset teams, and many other
professionals within the company. More
senior coordinator responsibilities
include overseeing data conveyance
between the operating teams and the
evaluators, interpreting securities
regulations to define form and
content of corporate disclosure, and
stewarding the review and approval
of the annual results by the board
of directors.
What are the typical day-to-day
activities that a reserves estimation
professional is involved in?
Most IQREs follow a structured set of
activities when estimating reserves and
resources, and a YP could be involved
in any part of these activities. Below
is a typical process IQREs follow to
estimate the reserves for an oil and
gas asset:
1. Analyze new data or information
associated with the asset, including
new production data, recent
drilling results, core analyses,
fluid analyses, completion
advances, and new technologies
for hydrocarbon extraction.
2. Evaluate recovery and well
performance for a particular
asset. Depending on the asset, the
evaluator will need to look at the
recovery mechanism in place to
understand how oil and gas assets
are being exploited. Recovery can
be determined volumetrically (as
is often the case when estimating
undeveloped reserves) or by other
methods such as decline analysis
and material balance.
3. Define and classify the
recoverable volumes into
reserves, contingent resources,
or prospective resources.
The classification process is
important, as reserves volumes
are correctly perceived as having
a lower risk associated with them
than contingent or prospective
resources.
4. Generate production forecasts
and economics using assigned
reserve and resource volumes,
capital cost estimates, operating
costs, and development plans
for an asset. As a matter of
course, the evaluator will
compare operator-supplied
information such as production
and cost forecasts with analog
field or industry performance
prior to finalizing their
economic evaluation.
What type of skills will be required
by an engineer or geoscientist to
transition into a job in reserves
estimation?
Most YPs will begin work in the area
by developing technical and economic
skills as an evaluations engineer or
geoscientist. They will need to become
fluent in a multitude of technical
fields, including basic geology,
geophysics, mapping, log analysis,
reservoir engineering, and production
engineering as well as building a sound
understanding of new technologies. Any
professional who already commands
these technical skills is a prime
candidate to embark into reserves
estimation but must also possess three
critical competencies—proficiency in
public discourse, curiosity, and above
all, attention to detail.
Because reserves estimation is
a key element of a company’s public
disclosure, new entrants will find that
it is a fairly precise area of business
(which tends to bode well for engineers)
and is heavily influenced by a large
amount of terminology and definitions.
Most engineers will deal with a large
cross-section of professionals of different
backgrounds from both inside and
outside of a company. The ability to
work with multiple teams is critical.
Professionals should have well-rounded
communications skills and not be shy to
engage in detailed conversation.
In addition, becoming a
professionally licensed engineer is a
must, while membership in the Society
of Petroleum Evaluation Engineers and
SPE—although voluntary—is highly
beneficial for networking and keeping
up-to-date with new industry standards
regarding reserves quantification.
How can a role in reserves help
a YP with his or her career
advancement?
A role in reserves estimation may
be advantageous for many YPs as it
provides a uniquely broad technical
and business perspective on the
management of oil and gas assets. All
of the elements that dictate how profit is
derived from oil and gas activities are
imbedded in the reserves estimation
process. Working in reserves typically
provides exposure to a geographically
and technically diverse mix of oil and
gas assets.
In addition, a YP working in a
reserves estimation role would tend to
get exposure to a wider cross section
of individuals within a company than
most engineers and geoscientists
working in other capacities. Working
in reserves offers the opportunity
to interact with other professionals
working in finance, accounting, investor
relations, legal, operations, planning,
and senior leadership, the latter
often at the executive and board of
director levels.
Can working in reserves facilitate
a transition from a technical to a
management role in an oil and gas
operating company?
Absolutely, that is what often happens.
Senior engineers will often be placed
into reserves/resource governance roles
and then subsequently transition into
a management position. In my role as
the secretary for the Cenovus Reserves
Committee, for example, I am frequently
in meetings with senior and executive
level management. Generally speaking,
the more senior roles in reserves tend to
be more management and policy-setting
in nature. However, it is imperative to
have a strong technical background. I
fundamentally believe that engineers
who excel in reserves are also capable
reservoir engineers.
How do oil and gas price fluctuations
impact the reserves forecasts in a
corporation?
Oil and gas prices can have a
significant impact. Reserves, by
definition, must be economic, so if
prices drop significantly (as of late),
Vol. 11 // No. 2 // 2015
23
Discover a Career
reserves may no longer be economic
and may result in a reclassification
into contingent resources. This could
result in a write-down of reserves for
a company, ultimately affecting the
corporate balance sheet and valuation
in the public marketplace. To be clear,
however, the resource doesn’t go
away, it just gets reclassified due to
economic reasons.
How can oil and gas price
fluctuations impact your career if
you are working in a reserves role?
Dig deeper
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your desk.
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right from your desktop with
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Join our industry experts as they
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View a list of available web events
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First of all, no one in oil and gas is
immune to the fluctuations of commodity
prices, but all public companies in the
upstream business are required to
file an annual disclosure regardless
of their financial situation. This
presents some level of job security for
professionals working in the reserves
estimation space.
Nevertheless, quantifying reserves
carries an enormous responsibility
for professionals in this area, as the
accuracy of their assessment has an
enormous influence on the financial
health of a company. In low-price
environments, this can make the
assessment more challenging and often
more political. Incorrect or improper
reserves estimates can result in
misled investors, refiling of corporate
disclosure, securities investigations,
class action lawsuits, and in some cases,
criminal prosecution, all of which hold
negative implications to a company’s
financial health.
One of the challenges that reserves
professionals face in their work comes
from the uncertainty associated with
reserves estimation. They meet this
challenge by performing evaluations to
rigorous standards and over a range of
certainty levels, such as proved,
probable, and possible estimates
for reserves.
How much influence should an
operator have over a consultant in
doing a reserves evaluation? What
is the importance of the operator
and consultant interaction?
This is an excellent question. The
influence that an operator has over
the quantification of its reserves has
important ethical overtones. In Canada,
for example, there is a requirement that
publicly disclosed reserves estimates be
prepared independently, without undue
pressure or influence from the operator.
At Cenovus, we encourage the
operating teams to talk to the evaluators
about data, their interpretation, and
their impact on future performance,
but to refrain from dictating the
outcome of the evaluation. To ensure
independence, we have put in place
a number of checks and controls,
including holding a 45-minute incamera session between the evaluators
and Cenovus board of directors
where the board explores whether
the evaluators were pressured by the
management.
Throughout the evaluation process,
open and constructive dialogue
between both groups is encouraged
to ensure the evaluator receives all
material information required to enable
a proper estimate of hydrocarbon
reserves. As part of the dialogue, the
IQREs are allowed to inquire about
the nature of the data and information
provided by the company. Conversely,
when the IQRE presents his or her
results, the company personnel are
permitted to challenge the estimates
and oblige the evaluators to explain
their results. Ultimately, upstream
corporations with proper governance
should have minimal influence over
the reserves estimates, ensuring the
legally mandated independence of
the evaluation and the highest-quality
disclosure for their investors. TWA
Technical Leaders
Effect of Commodity Prices on the
Engineer, the Industry, and the World
Angela Dang, Colorado School of Mines Student; Chieke Offurum, EOG Resources; and Colter Morgan, Chevron
How would you describe the
commodities industry and its role in the
oil and gas sector?
The oil and gas commodities industry,
i.e., the trading of oil and gas, is highly
critical. Oil and gas being traded as a
commodity signifies that it is a global
industry. The trading of commodities—
not just oil and gas, but any commodity—
is a global endeavor. As such, the
price is set by a global market. To me,
that is the most critical factor about oil
and gas. Interest rates and oil prices
are probably the two variables that
have the greatest impact on the global
economy. Interest rates more so, but it
also points to the importance of oil as
a commodity.
Oil and gas as a global market
really took off in the 1970s and 1980s
with the rise of the Organization of the
Petroleum Exporting Countries and
the development of technology that
physically allowed the barrel to move.
The advent of the Internet and electronic
technology that facilitates the stock
and trading exchanges of the world
also fueled the globalization of oil and
gas trading.
What is the most common misconception
about commodity prices and trends,
specifically for oil and gas (either
publicly or within the industry)?
There is an assumption that traders set
the price. Prices, especially long term,
are set by the market’s perception of
supply and demand—that is not just
traders, but also the end users and the
producers of the commodity. There
are really three large groups that trade:
producers, users, and the “middle men,”
or what some people may call traders
or speculators. While they do influence
prices and add volatility, they do not
really set the prices.
The oil and gas industry does not dictate
the price at which the products are sold.
Which other industries are subject to the
same challenge? How do they deal with
such uncertainties ?
There are several industries that
are similar to oil and gas in terms of
selling commodities—gold, silver,
molybdenum, really anything that is
mined. But I think maybe the industry
that has the most in common with oil
Ward Polzin is chief executive officer of Centennial Resource
Development, a Denver-based private oil and gas company
backed by Natural Gas Partners. Polzin has more than 25 years
of experience in the upstream oil and gas industry in
engineering, commercial, investing, and transactional roles.
Prior to forming Centennial, Polzin served as a managing
director and founding partner in Investment Banking at Tudor,
Pickering, Holt & Co., where he spearheaded the firm’s
exploration and production asset acquisition and divestiture practice since inception.
Previously, Polzin served as the US country manager at Enerplus Resources and as a
managing director with Scotia Waterous & Co. Polzin has been an SPE member for
more than 25 years and is also a chartered financial analyst. He holds a BS in
petroleum engineering from the Colorado School of Mines and an MBA from
Rice University.
and gas is agriculture, whether crops
(such as wheat) or livestock. The biggest
challenge boils down to volatility—it is
up some days, it is down others, which
brings risk into the equation.
Simplistically, I see three ways
(although there may be many more) for
companies in the industry to protect
themselves from volatile commodity
prices. Firstly, you could hedge,
meaning you can sell your product at a
predetermined price—a forward sale of
your product.
Secondly, you can diversify. If you
are an oil producer, you have some
gas in your portfolio. Or, if you are a
gas producer, you can add some oil
so that you are not exposed to just one
commodity. You can also diversify by
basin or country. Different basins have
different price discounts so you can
minimize some forms of price exposure
this way.
Thirdly, you can work on becoming
the low cost operator (LCO). If you can
do it for less, you can handle the lower
prices. We generally think of commodity
in the traditional sense, referring to
mining, oil, gas, agriculture, etc. But
colloquially, people say, “my product
has been ‘commoditized,’” meaning
that anyone can produce my product.
One example is solar panels, now being
manufactured less expensively in China
than they were a few years ago. Have
solar panels become a commodity?
Not in a conventional sense, but who
survives? The LCO.
As the industry becomes more
mature, ultimately, the prices are going
to come down for whatever you produce.
By becoming an LCO, you can better
cope with the volatility.
What are the effects of price decline on
the US’ status as an oil and gas exporter?
Vol. 11 // No. 2 // 2015
25
Technical Leaders
You have to divide gas and oil and talk
about each separately because [the US]
is not legally allowed to export crude oil,
except to Canada. Each commodity has
its own uniqueness in the technical and
political challenges it faces to be moved
around the world. Oil is legally difficult
but logistically easy to move (just put it
in tankers!). On the other hand, gas is
easier politically, but hard logistically
(complex and expensive liquefied
natural gas [LNG] tankers). The good
news is that now the [US] seems to allow
for the export of (refined) condensate,
which is a good step toward the ultimate
export of oil.
The price decline creates a stronger
desire for oil export. When prices are
high, you are not as concerned with
having access to more markets, but
when prices are low, you just want all
the markets you can find in which to sell
the product. Low prices definitely put
pressure on the US government to allow
that, and certainly more pressure on oil
companies to try and get that changed.
Gas is a good example of this. Since
gas prices declined before oil price
declined, it is one step ahead. Clearly,
the LNG export facilities trying to be
permitted and built are an example of
that. The desire to export gas happened
quicker because prices dropped
quicker. Oil is following gas in this, so
there is a higher motivation to export oil.
Given that the oil and gas industry is
dictated by the price of its products,
in your opinion, how important is it for
engineers to understand this side of
the industry?
Critically important. I guess it is a little
self-serving because I have always
been fascinated by the combination of
finance and petroleum engineering. I
have also spent half of my career in the
more financial part of the industry. To
me, it is natural to want to put the two
together. Engineers definitely have
that technical mind and quite frankly,
if they have an interest in it, they can
easily develop an understanding of the
financial side.
26
One of the biggest concerns as a young
engineer in the oil and gas industry is
layoffs during the downturns. At what
point does a company consider layoffs
(i.e., why would a company consider
layoffs vs. other cost-cutting measures)?
In a downturn, layoffs are not the first
thing that happens. First come the
spending cuts. Even though people are
expensive, wells are more expensive,
so the first steps are cutting capital,
drilling less, and slowing down projects.
The second cost-cutting target is lease
operating expenses. These are the costs
of maintaining and operating property
and equipment on a producing oil and
gas lease. Third is the cutting of general
and administrative expenses (G&A).
The primary G&A expense is people.
The next obvious question as a
professional in the industry is how to
deal with it. In difficult times, if you are
already employed, you want to make
sure you are working on the best assets,
because the company is going to slow
drilling in the worst assets first. You do
not always control where you are posted,
but if you can, working the asset that
stands the test of time is certainly a good
place to be.
For the folks who are still trying to
find that job, I can relate to that extremely
well because I graduated in 1984 (from
Colorado School of Mines) when there
were minimal jobs. I already loved the
finance side and I could see it coming
a year ahead of time so I went and got
a business degree. Getting a higher
education meant the addition of another
skill to my resume. Graduating from
business school in 1986 was even
worse, but thankfully I had two degrees
so that set me apart. There is nothing
wrong with going back to school, but
I have always advised folks against
getting an extra degree just because
it looks better on your resume. You
better like learning. Pursue something
that truly interests you. If you have that
interest and desire, go for it, do it right
now, and you will be that much better
and more competitive coming out of
graduate school.
Deciding on whether to pursue a
business degree or a technical degree
beyond the undergraduate level is
one reserved for the individual. A
master’s in petroleum engineering
would not have been right for me,
because I just loved combining the
finances with the engineering. Either
is a good route; it is just a matter of
personal preference.
What personal advice can you give
young engineers about working in the
volatile oil and gas industry?
One can use the same strategies that oil
and gas companies use to minimize risk
to navigate the industry.
Hedge. How an individual hedges
is education. Make sure you are
constantly learning so that you are not
pigeonholed into only knowing one part
of the business.
Diversify. As a person, diversifying
does not mean you get a different job; it
just means that you make sure to keep
your petroleum engineering skills broad.
Yes, have a focus—maybe you are a
completions engineer or a reservoir
engineer—but you should be learning
all you can about the other engineering
disciplines. Even though you do not
become an expert, it is important to
appreciate and understand all the parts
of the puzzle in getting oil out of the
ground and moving it.
Be an LCO. From an individual’s
standpoint, it means bringing more value
as opposed to cost to your employer.
You have to be able to do more than what
is being asked of you, digging deeper
to understand the numbers a little bit
better, and taking a project further than
“the answer.” It is not about having the
answer; it is about what you do with
that answer—provide a solution and
implement it.
In a 2012 The New York Times OpEd article titled “The High Cost of
Gambling on Oil,” Joseph P. Kennedy
II states, “[speculators] add little value
and lots of cost as they bid up the price
of oil in pursuit of financial gain. They
should be banned from the world’s
commodity exchanges, which could
drive down the price of oil by as much as
40 percent and the price of gasoline by
as much as $1 a gallon.” Any thoughts on
this statement?
I disagree with the strength of the
statement that Kennedy makes. The
speculators and traders who were
operating in 2012 are still operating
today. This article probably would
not have been written in 2015, yet the
speculators are doing today what they
were doing then. Speculators did not
drive oil prices up and they did not drive
it down. If you believe in capitalism, I
think you need to have these exchanges
and traders.
Usually speculation has a negative
connotation, but I do not treat it that way.
Exchanges and traders are just a part
of a capitalist system. If you have ever
bought a stock or mutual fund, you are
speculating. If you are buying it, you
think the price is going to go up. If you
are selling it, you think it is going to go
down. If there are more people buying
it, it is going to drive the price up, and if
there are more people selling, the price
is going to be driven down. So I think
we are all speculators in lots of ways,
but obviously not to the extent that some
are. While oil and gas speculators make
an impact, they are not the main driver
of prices.
One could argue that our dependence
on fossil fuels has become crippling.
Would you consider gas a luxury
resource? In other words, do oil and gas
as commodities bear more resemblance
to wheat or lobster?
I very much think it bears more
resemblance to wheat because it is the
lifeblood of our society. Oil and gas is a
fundamental resource, but I would say
that about all energy, not just oil and gas.
Energy drives the world, whether it is
renewables, nuclear, or fossil fuels. I do
not think that the world’s dependence
on fossil fuels is crippling. Based on
what I have read, a country’s gross
domestic product can be increased the
quickest by using oil as compared to all
other fuels.
The more mature the country’s
economy gets, the less and less it uses
fossil fuels and it can begin to switch to
other sources of energy. It is a great way
of quickly bringing up the quality of life
in poorer countries.
There is often a disconnect between the
consumers and producers of petroleum.
Users of petroleum projects revel in
the low price of oil because it means
a low cost of gasoline, but to those in
the industry, low oil price means job
losses and a jeopardizing of economic
security. What would you recommend to
close this gap in understanding?
Boy! That is something we have been
trying to do for decades. There are
some standard industry responses to
that. We have not been very good,
as an industry, at communicating
our role in the economy and jobs,
but we are getting better. I think just
about anybody would say that. More
specifically, how do you get better?
Make it more local.
There are a lot of commercials
and data available at the national
level. With states like North Dakota,
Colorado, and Pennsylvania seeing
big developments in recent years,
organizations have been created in
response to bridge the communication
gap between industry and the public.
Coloradans for Responsible Energy
Development, for example, really
brings it down to the state level—here
is the impact in our state. Individual
companies can take it one step further.
Here [in Colorado], companies like
Noble Energy, Anadarko, and Encana
have held public meetings at the county
level, bringing industry employees out
to the community. The more local you
get the better; people can really see
examples of oil and gas working well
with the community.
I also think it is important to
educate the public about how crude
oil byproducts affect their everyday
lives. Outside of the obvious
contributions to transportation,
lighting, heating, and cooling, it is
making sure people understand
how much of their world is built on
fossil fuels.
Young engineers make great
ambassadors for the industry. You
know a lot; even though you may not
appreciate it, you are an expert. You
need to be unafraid to speak up and
politely debate the topics with people.
From a social responsibility
perspective, can hydrocarbon
consumers and producers strike a
balance where profit margins are met
and sustainability can be achieved? In
other words, can oil and gas companies
still make money, but take an active role
in promoting conservation of natural
resources and the pursuit of renewable
energy resources?
I think we can achieve that balance.
When you are in the industry, you may
not pay attention to the effect of high
oil prices on the economy. Conversely,
those who are not in the industry
may not appreciate the tradeoff. In a
USD 50/bbl world, there is just no way
oil and gas companies make enough
money long-term. But at USD 120/bbl
you can make, in a sense, too much
money and our industry will be targeted.
I think there is a happy balance
where we make money as companies
and the greater society has a strong
economy. At USD 80/bbl or USD 90/bbl
oil, economies zoomed right along, but I
think at USD 120/bbl oil, economies
started to hurt. There definitely is
a place where we can meet in the
middle from a profitability standpoint.
There is a balance we have to strike
in the lifestyle we lead, not just in the US
but in the world. We cannot innovate—
create the Internet, develop new
medicines—if we are a poor society. A
lot of that ability to innovate stems from
our access to cheap energy. TWA
Vol. 11 // No. 2 // 2015
27
Soft Skills
How Petroleum Industry Young Professionals
Can Survive the Oil Price Volatility
Rita Okoroafor, Schlumberger; Islin Munisteri, Department of Natural Resources, State of Alaska;
David Sturgess, Woodside Energy; and Asif Zafar, Halliburton
Never mistake a lack of volatility for
stability. Due to many influencing factors,
the oil and gas industry has experienced
several cycles of meteoric rises and
plunges in oil price. With the volatility of
oil prices comes key business decisions
in the industry, which may or may
not directly affect the career of
young professionals (YPs).
Fig. 1 shows the monthly crude
oil prices from 1946 to November
2014, adjusted for inflation. Following
significant oil price peaks, for example,
in 1979 and 2008, were the declines.
Below are some of the historically
consistent reactions during downturns in
oil prices:
• An increased drive to develop
alternative (and cheaper) sources
of energy
• Increased employment in industries
other than the oil and gas industry*
• Enrollment in petroleum
engineering education decreased,
but after staying steady for a few
more years near the peak*
• Job cuts in organizations directly
or indirectly related to the oil and
gas industry
• Job restructuring, such as giving
international staff new roles in their
home countries, within the oil and
gas industry
Knowing that oil price is cyclic in
nature and very volatile, how can one
apply the past lessons today?
Be a High Performer
It is true that at USD 30/bbl no job is
indispensable. Nonetheless, being a high
performer improves your chances of
surviving the volatile times while actively
advancing your career. High performers
are characterized by their ability to
deliver consistent and excellent results
with a reputation for being competent
and trustworthy. They master technical
challenges, continually refine their
leadership skills, and act as role models
with a positive attitude that enthuses the
company culture.
Being a high performer requires
making personal sacrifices to ensure
that even perfection is not good enough
in the quest to succeed. You can build
upon an attitude of relentless learning
by transforming ideas into actions and
tackling opportunities and challenges
head-on. It is important not to lose
the world around you and to keep
your “radar” engaged for assessing
opportunities and risks. This will help
you to quickly manage pitfalls and
ensure you are in the right place at the
right time.
Getting on the coveted highperformer list may entail burdening
stress, sacrificing your personal life, and
may create friction between you and
your colleagues. Hence, it is important
to determine why you want to be a high
performer, and not just how, in order
to succeed in the long run. The Greek
legend of Icarus illustrates the fine
balance required when flying close to
the sun, as the fall from grace can be
often dramatic and harsh.
160
140
Mar. 1946 Monthly Avg.
Oil Price USD 17.68
in 2014 Dollars
Oil Price (USD)
120
Dec. 1979 Monthly Avg.
Peak USD 117 in
2014 Dollars
June 2008 Monthly Avg.
Oil Price USD 136.33
in 2014 Dollars
Dec. 1998 Monthly Ave
Oil Price USD 12.45
in 2014 Dollars
100
Nominal Peak USD 38 (Mo. Avg. Price)
Intraday Prices peaked higher
80
60
Avg. Inflation Adj. Price
40
Inflation Adjusted Oil Price
Nominal Daily Price
USD 49.50 on 17 Dec.
20
Nominal Oil Price
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
1952
1950
1946
1948
0
Fig. 1—Inflation-adjusted monthly crude oil prices from 1946 to 2014. Source: www.inflationdata.com.(Source of data: Illinois
crude: www.PlainsAllAmerican.com and inflation index: www.bls.gov.)
28
300,000
104,005 35,746
40,846
134,319
34,847
159,104
47,019
46,511
41,597
110,891
75,000
110,917 30,449
100,000
139,576
125,000
133,070
150,000
173,338
175,000
156,439 57,889
Income (USD)
200,000
143,813 57,176
74,023
225,000
193,010 36,071
250,000
Other compensation
Base salary
50,000
25,000
Af
ric
O
ce
a
an
ia
/A
C
us
an
tra
ad
lia
a
/N
ew
Ze
al
an
d
M
N
i
dd
or
le
th
Ea
Se
st
a/
N
or
th
N
At
or
la
So
th
nt
ut
er
ic
h
n/
Am
C
en
er
tra
ica
lA
/C
sia
a
So
rib
ut
be
h/
an
C
/M
en
ex
tra
ic
l/E
o
as
te
rn
Eu
ro
pe
So
ut
he
as
tA
sia
St
at
es
U
ni
te
d
To
ta
l
0
Fig. 2—Base pay and other compensation of SPE members by work region in 2014. Source: 2014 SPE Membership Salary
Survey Highlight Report.
Reach Out to Mentors, Draw
From Their Experience
The cyclical nature of oil prices is a
recurring reminder to all working in the
industry, particularly to those in contract
or service-oriented postions, that the risk
of losing job security is high. However,
there is no disputing that the reward is
also high as the 2014 SPE Membership
Salary Survey Highlight Report clearly
demonstrates (Fig. 2).
Keeping the fear of losing the job at
bay is difficult but has significant longterm benefits. Think of the engineers
who have endured the volatile cycles of
the industry in their more than 30-year
career. Take them out for a lunch or
coffee, and ask them key questions that
concern you. With the big crew change
happening, do not forget to collect their
post-retirement contact information to
stay in touch.
Even though the senior
engineers may have moved on to
other opportunities or taken early
retirement, understand that this is your
opportunity to step up into the gaps
and shine.
Downturns are often the best time
to gain the most useful experience in a
short period of time. Shadowing a mentor
who thinks on his or her feet and delivers
on key business decisions will teach
you great skills that remain relevant
regardless of the oil price.
Don’t Be Shy To Showcase
Your Skills
Like a lighthouse, your ability to weather
the storm of a downturn in commodity
prices is directly related to how strong
of a foundation you have built in the
off season.
As young petrotechnical
professionals, we are often modest and
let the facts speak for us. However, in
order to weather the downturn in oil
price, your work must stay relevant and
comprehensible. You are responsible
for advocating a seat at the table. The
expression “If you are not at the table,
you are on the menu” holds true. After
years of networking, do not be afraid
to use your networks now, and equally
so, do not hesitate to help another YP
if asked.
Although it is tempting to exclusively
focus on comparing yourself with peers
during a retrenchment period, do not
let your career drift. Do not strive to
be better than anyone. Rather strive
to be the best version of yourself and
remember that the grass is greener
where you water it. So proactively plan
your career trajectory and achieve
résumé-building tasks. Ensuring your
résumé is up to date should not make you
feel like a traitor. It is important to keep a
career plan and continuous professional
development log before you forget your
measurable impact on your company.
What To Do if Your Role
Becomes Redundant
Sometimes, even after you have done
your best, a redundancy comes up.
It may not be because of your own
performance, but just an unlucky
Continued on page 36
Vol. 11 // No. 2 // 2015
29
Tech 101
Keystone XL Pipeline:
Rhetoric vs. Economics
Craig Pirrong, University of Houston
There are about 180,000 miles of oil
pipeline in the United States, but all of this
mileage put together has not generated
1% of the controversy as a pipeline
that would add a mere 1% to the total—
the Keystone XL Pipeline connecting
Alberta’s oil sands to refineries in
Texas and Louisiana. Since it crosses
an international boundary, Keystone
requires US State Department approval,
which has not been forthcoming under
the Obama administration.
Keystone has become a cause
célèbre on both sides of the political aisle.
President Obama has made numerous
statements criticizing the pipeline and
has vetoed the legislation mandating
its approval. Conversely, Republican
Senate Majority Leader Mitch McConnell
had promised to make Keystone the first
legislative priority in Congress when he
took office.
Many arguments have been
advanced against Keystone. First and
foremost, opposition to the pipeline
rests on environmental objections.
Environmentalists deem crude oil
produced from Canadian oil sands to
be uniquely damaging due to its carbon
intensity when compared with other
types of crude. When the environmental
arguments failed to gain considerable
traction, opponents shifted to economic
arguments. These include assertions that
Keystone will not reduce at-the-pump gas
prices in the US, and that most Keystone
oil will be exported.
Unfortunately, these political and
environmental arguments have created
more heat than light. A straightforward
economic analysis of Keystone
demonstrates that its benefits will not be
as great as its advocates say, but they will
be material. The environmental effects
are likely modest and outweighed by the
economic benefits.
The Economics of Keystone
The direct economic effect of Keystone
is quite straightforward. It would reduce
the cost of transporting crude oil from
Canada to the US Gulf Coast. Without
Keystone, rail is the most economical way
to transport the oil to the Gulf refineries.
US government reports estimate that
rail shipment costs about USD 10/bbl
more than transportation via Keystone.
This means that the benefits in terms of
reduced transportation costs are on the
order of USD 8 million/day, which is USD
10/bbl multiplied by the 830,000 BOPD
Keystone can transport in lieu of more
expensive trains.
Textbook economics also makes it
possible to trace the effects of Keystone’s
introduction on petroleum prices and
Craig Pirrong is a professor of finance and the energy
markets director for the Global Energy Management Institute at
the Bauer College of Business at the University of Houston.
Pirrong’s research focuses on the economics of commodity
markets, the relation between market fundamentals and
commodity price dynamics, and the implications of this relation
for the pricing of commodity derivatives. He has published
more than 30 articles and is the author of four books. He has
also consulted for clients that included electric utilities, major commodity traders,
processors, consumers, and commodity exchanges around the world.
30
carbon dioxide (CO2) emissions. There
are two possibilities to consider. The first
is that even after the pipeline is built, the
demand for Canadian heavy crude in the
Gulf is large enough that some oil will
continue to be shipped to US refineries
by rail. In this case, the construction of
Keystone will not affect the quantity of
Canadian crude produced or consumed
because the cost of transporting
the marginal barrel will not change.
Here, Keystone’s only effect will be to
reduce overall transportation costs, an
unambiguous benefit. There will be no
incremental environmental impact, or
any effect on refined product prices in
the US, because these effects depend
on the amount of oil sands crude that
is produced.
In the second case, Keystone will
displace rail shipment altogether. Here
the analysis is somewhat more complex
because in this case, the cost of shipping
the marginal barrel will fall.
Transportation costs drive a wedge
between the price paid for a barrel of
Canadian crude by a Gulf refiner, and
the price received by the Canadian
producer. Lowering transportation
costs at the margin reduces the size of
this wedge. As a result, the price paid
by US refiners will decline, and the
price received by the producers will
rise. Together, these price changes
will increase oil sands production
and consumption.
This is illustrated in Fig. 1, which
presents a schematic supply/demand
analysis of crude oil supply. The
downward sloping demand line for the
Canadian heavy crude at the terminus
of Keystone shows that the more the
demand, the lower the price. The
Canadian supply line is the supply of
oil sands crude in Alberta: this is the
marginal cost of crude production there.
120
Crude Oil Price (USD/bbl)
100
80
60
Demand
Supply via Keystone
Supply via Rail
40
Canadian Supply
20
980
960
940
920
900
880
860
840
820
800
780
760
740
720
700
680
660
640
620
600
580
560
540
520
500
480
460
440
420
400
0
Crude Oil Quantity (B/D in thousands)
Fig. 1—Supply and demand for Canadian heavy crude at the US Gulf Coast.
To determine the supply of Canadian
crude at the Gulf, it is necessary
to add transportation costs to the
Canadian supply line. The supplyvia-rail line is the supply assuming
rail transportation: it is above the
Canadian supply line by the cost of rail
transport. The supply-via-Keystone line
is the supply assuming oil is transported
on Keystone. It is lower than the supplyvia-rail line by the transportation cost
differential, assumed to be USD 10/bbl.
The supply-via-Keystone line stops at a
quantity of 830,000 bbl, because this is
the pipeline’s daily capacity.
Note that the intersection of the
demand curve and the supply-via-rail
curve is at a lower quantity and higher
price at the Gulf than the intersection
of the demand curve and the supplyvia-Keystone curve. Thus, more oil
is produced and consumed with
Keystone. Moreover, the crude price
at the Gulf is lower with Keystone,
and the price in Canada is higher.
This happens because the price in
Canada is higher, the more oil is
produced, and this quantity is higher
with Keystone.
It is this effect of Keystone’s reduction
in transportation costs that is crucial
to any evaluation of the pipeline’s
environmental and economic effects.
The magnitude of the effect depends on
how sensitive the supply and demand for
Canadian oil are to prices. Economists
refer to these sensitivities as “elasticity.”
In terms of the graph, increasing
elasticity makes the lines flatter. The
less elastic the supply and/or demand
are, the smaller the effect of lower
transportation costs on quantities, and
the bigger the effect on prices.
In the short run, the supply of
Canadian crude is quite inelastic
because the investments in capacity
to produce it are sunk, making it
desirable to produce up to capacity as
long as price exceeds extraction cost,
and making it impossible to expand
production beyond capacity. Over the
longer run, higher prices will encourage
additional production capacity, with
more capacity being added with the
increasing price.
The elasticity of demand for Canadian
crude at the Gulf is determined by
several factors:
1. Demand for heavy crudes and the
net of supplies from other sources
such as Venezuela and Mexico are
likely highly inelastic, especially in
the near term, which tends to make
US refiners’ demand for Canadian
crude inelastic as well.
2. The demand for petroleum
products tends to be
relatively inelastic.
3. When refineries operate close to
capacity (as is currently the case),
they cannot increase their use of
crude substantially even if price
falls significantly, making the
demand for crude inelastic.
Since the demand and supply for
oil sands-produced crude are likely to
be very inelastic in the short run, the
immediate consequence of building
Keystone will be an increase in output
of Canadian crude slightly, but an
increase in the profitability of both
producing and refining it, with refiners
and producers splitting the transportation
cost savings.
In the longer term, the impact on
output will be somewhat higher, but
Vol. 11 // No. 2 // 2015
31
Tech 101
the main effect is likely to be on profit
margins for producers and refiners, and
on transportation costs. Another effect
of Keystone will be the displacement
of other imported heavy crudes (from
Venezuela and Mexico), and lower prices
for these sellers.
benefits of the greater output that
results from these lower costs. More
reasonable estimates of incremental
CO2 (around 7 million tons/year) and
the social cost (USD 20/ton) imply
that environmental costs are less than
20% of the transportation cost savings
that Keystone will produce.
Environmental Impacts
Environmental arguments against
Keystone focus on the greater carbon
intensity of oil sands. According to the
US State Department’s Environmental
Impact Statement, the 830,000 BOPD that
Keystone would transport would produce
between 1 million and 27 million more
tons of CO2 per year than the same
quantity of other types of crude. To
put this in perspective, this represents
about 0.08% of world greenhouse gas
emissions. But as noted earlier, much
and arguably most of the oil that would
flow on Keystone would be produced
anyway, so the incremental effect of
Keystone on greenhouse gas output
would be even smaller. In terms of the
supply/demand graph, the incremental
effect of Keystone would be to increase
output from the oil sands from 700,000
BOPD to 750,000 BOPD, and the CO2
emissions would increase proportionally.
This effect would be smaller for the
less-elastic demand and supply for
Canadian heavycrude.
What is more, based on high-end
estimates of the social cost of CO2
emissions (less than USD 100/ton) and
the additional amount of CO2 attributable
to oil sands production, the social cost of
all 830,000 BOPD shipped on Keystone
would total at most USD 2.7 billion/year.
This number would be smaller than the
transportation cost savings alone—the
incremental social cost associated with
the additional production resulting from
lower transport costs is smaller yet.
Thus, a very high-end estimate of the
environmental cost of Keystone is less
than its low-end economic benefit, which
takes into account only the transportation
cost savings, and ignores the
32
Keystone and Gasoline Prices
The effect of lower transportation
costs on output also determines the
effects of Keystone on the prices of
gasoline and other refined products
in the United States. If by reducing
the marginal transportation costs,
Keystone results in higher oil output,
the additional output will reduce prices.
A back-of-the-envelope calculation
based on an oil demand elasticity
of 10 shows that if Keystone causes
Canadian oil sands output to be higher
by 100,000 BOPD, or about 0.1% of world
consumption, oil prices will be about
1% lower.
There is a tension between
the economic and environmental
arguments against Keystone. Obama
said, “It doesn’t have an impact
on US gas prices.” This would be
the case with very inelastic supply
and demand. But if the effect on
production and consumption is small,
the environmental impacts are
commensurately small. Conversely, if the
effect on output and consumption is large,
the pipeline will have a nontrivial impact
on prices and the environmental impacts
will be larger as well. Thus, you can
either argue that Keystone will not
reduce the prices consumers pay or
that Keystone will result in material
environmental harm—you cannot argue it
will have both effects. You have to choose
between arguments based on prices
or arguments based on the environment.
Keystone Oil Will Not Be Exported
One economic argument that has been
raised against Keystone is clearly
wrong. Specifically, opponents of the
pipeline claim that foreigners, not
Americans, will reap all of the benefits
of Keystone, because Canadian oil will
be exported, mainly to China, with the
US only providing the land link in the
trip from Alberta to Asian refiners. The
bumper sticker version of the argument is
“The Chinese get the oil, the Canadians
get the money, and the Americans get
the pollution.”
In fact, the Canadian heavy crude
oil transported on Keystone will not
be exported in any quantity. The
very reason to build the pipeline is
that the largest collection of complex
refineries optimized to refine heavy
crude oil is located in Texas and
Louisiana. These refineries can
process oil sands crude more efficiently
than any other refineries in the world,
especially when compared with the
ones in China. Moreover, even after
the widening of the Panama Canal,
economical shipping of Canadian crude
to Asia on very large crude carriers
would require a long voyage to the east;
it is much more economical to export
Canadian crude by pipelines between
Alberta and the Canadian Pacific Coast.
Thus, due to the efficiency of the US
refineries and their transportation cost
advantage compared with any other
possible destination, US refineries
will be able to outbid other refiners
around the world in acquiring Canadian
crude. Keystone crude will not hit
salt water.
Since the US has become a large
exporter of refined products, some of
the oil shipped on Keystone will be
exported in the form of gasoline,
diesel, and other refined products.
But the increased value-added
exports will benefit the US trade
balance and the refineries’ owners.
In fact, access to lower-cost crude
will encourage investment in
additional refining capacity. Reducing
the cost of imported Canadian
crude oil, therefore, definitely creates
economic benefits for the US. TWA
A YOUNG PROF
ESSIONAL’S
GUIDE TO
The Impact of
Oil Price Volatility
in Russia and China
Shruti Jahagirdar, Shell; Kristin Weyand, ConocoPhillips; Batool Arhamna Haider, Stanford University
Student; and Li Zhang, Devon Energy
When the prices of oil and gas spiral
upward or downward, the effects are
felt around the world. Economies of
some countries are affected more than
the others, especially, if they are large
oil-exporting and -importing countries.
Four of the five largest oil-importing
nations, China, Japan, India, and South
Korea, are in Asia and collectively
import more than 15 million B/D
of oil, according to the CIA World
Factbook 2013–14. Any shift in oil price
results in huge adjustments to these
countries’ national budgets. The world’s
largest oil-exporting nations include
Saudi Arabia, Russia, Iraq, Iran, and
Nigeria. Collectively, these nations
have the capacity to dominate the
global oil economy.
Let us take a closer look at the impact
of changing oil and gas prices on Russia,
one of the largest oil- and gas-exporting
nations, and China, one of the largest oiland gas-importing nations in the world.
Russia: Oil and Gas Exporter
Russia tops the chart as the largest
country in the world by area,
encompassing 6.6 million sq miles.
It leads the political scene as one of
the most powerful and developed
countries in the world and maintains
its innovative edge as a leader in
nuclear power and space research. For
a country with so much independent
power, Russia’s economy remains
RUSSIA’S RESOURCES
Energy (From BP Statistical Review of
World Energy 2014)
Mineral Resources
• Second largest natural gas and eighth
largest oil reserves
• Norilsk Nickel: Approximately 40% of world
production of palladium, 10–14% of nickel,
and 12% of platinum
• Second largest coal reserves
• Rusal: World’s largest producer of aluminum, approximately 7% of world production
hugely dependent upon the energy and
mineral resources that it holds.
Blessed with abundant resources,
Russia exerts huge geopolitical
influence on its European neighbors. Of
paramount importance to countries such
as Ukraine, Russia supplies 25%–30% of
natural gas needs in Europe, according
to the International Monetary Fund
(IMF). Oil and gas fund about half of
the Russian budget, reports CNN. So
what happens when commodities prices
fluctuate—either up or down?
Though difficult to imagine in the
current price environment, what would
happen in a scenario with increased
oil prices? The Russian ruble becomes
very strong, as more global currency
is converted into the ruble both as
investment capital and as currency
speculation. If Russia decides to restrict
its exports, the negative impact of a
supply shock will be keenly felt by the
oil-importing nations, as the price will
need to rise to clear the market. As a
result of high oil prices, the inflation rates
in the country are controlled and low
interest rates increase the investments in
new businesses and real estate.
When speaking of investments,
one cannot forget that rising oil prices
also trigger more investment in the
unconventional hydrocarbon exploration
and deepwater oil and gas fields. Highprice environments allow investments
in research for advanced technology
to optimize extraction of resources,
resulting in job creation for locals
and expatriates.
Apart from oil and gas, Russia boasts
of many other noteworthy commodities,
such as palladium, platinum, nickel, and
aluminum. Although the prices of these
commodities do not directly affect the
economy of the nation, they provide a
broader economic confidence and rising
Vol. 11 // No. 2 // 2015
33
YP Guide
oil prices contribute to higher levels of
activity in the industries in which these
minerals are processed and exported.
The gains on rising oil prices are
fast forgotten when oil prices come
plummeting down like they did in 2008
and more recently in 2014–15. With
oil revenues making up about half of
the government budget, the sharp
decline in prices can spell disaster for
the Russian economy. Recent reports
by the IMF, Deutsche Bank, and Fitch
Rankings estimate that Russia needs a
global oil price of USD 98/bbl to cover
its budgetary expenditures. According
to the BBC, the country loses about
USD 2 billion in revenue for every dollar
drop in oil price.
The Russian ruble has slipped by
more than 25% against the dollar since
the start of 2014 because of falling oil
prices and Western sanctions against
Moscow over the conflict in Ukraine.
So far, Central Bank of Russia has been
struggling to deal with this crisis. On
15 December 2014, the country hiked
interest rates from 10.5% to 17% in an
attempt to stop people from selling
off rubles.
Russia’s draft budget for 2015
assumes oil at USD 100/bbl. Below
that, it will be hard for President
Vladimir Putin to keep his spending
promises. Incidentally, similar events
occurred in the mid-1980s, when falling
oil prices left the indebted Soviet Union
cash-strapped.
China: Oil and Gas Importer
If falling oil prices are detrimental
to the economies of oil-exporting
nations, how does that contrast with
the increased buying power of an oilimporting nation such as China?
Considering it is the world’s fourth
largest producer of oil, China’s oil
exports may seem surprisingly low, until
we consider that the country is also the
world’s second largest consumer of oil,
after the United States. According to a
US Energy Information Administration
report in 2013, nearly 45% of China’s
34
oil consumption was met by domestic
production. China chooses to use
much of its production locally to drive
its huge manufacturing and industrial
sector instead of putting the oil on the
global market.
As one of the world’s leading oil
importers, China brings in more than
2 billion bbl each year. Historically,
China’s seemingly insatiable demand
has helped sustain commodity prices
at levels higher than recent prices.
However, China’s demand for oil
appears to be slowing. The year-overyear growth in demand from 2012 to
2013 was 136,000 BOE compared with an
average increase of 432,000 BOE each
year from 2000 to 2012. This softening
in demand has in part contributed to
declining oil prices.
In addition to imports, a key strategy
that China’s national oil companies
are adopting is to acquire oil and gas
assets in other countries. China National
Petroleum Corp. holds hydrocarbon
assets in nearly 30 countries and some
of the heaviest investments are in
unconventional assets such as shale
gas and tight gas formations. A key
reason behind these investments is to
develop the knowledge and technology
to transfer back to China’s own
increasingly challenging fields.
Many of these acquisitions,
occurring over the past 3 years,
have been through bilateral oil-forloan agreements with countries such
as Russia, Venezuela, Ecuador, and
Kazakhstan. Through these agreements,
China provided capital for energy
exploration and infrastructure in return
for oil and gas imports at hedged
prices. Depending on the terms of the
agreements, China may be stuck with
importing oil at prices much higher than
market value for some time, or may have
found a winning ticket.
The Chinese government may be
able to take advantage of low commodity
prices to reach its targeted grossdomestic-product (GDP) growth as
manufacturing and construction make
CHINA
• World’s fourth largest producer of oil
• PetroChina production:
3.5 million BOEPD
• Daqing, largest oil field, produces
765,000 B/D
• More than 2 billion bbl of
oil imported per year
up almost half of China’s GDP. Lower
crude oil costs could have favorable
effects on the price of plastics and
other synthetic materials that go into
these products.
Similarly, low oil prices reduce
transportation costs, which could
favor more products being exported
from China. Unlike in the US, labor
is extremely cheap in China’s
developing regions. By reducing the
fuel costs, which make up a significant
share of the exporter’s total costs,
overseas shops could undercut
domestic manufacturing.
In addition to national economies,
local consumers also feel the effects of
a shift in commodity prices. Consumers
typically are thrilled when the “price
at the pump” for gasoline decreases.
Unlike in the US and other free market
economies, China’s gas and diesel
prices are set by the government, so
consumers may experience a price
lag when crude oil prices increase
or decrease. Furthermore, when the
government does adjust pump prices,
many citizens may be oblivious to the
savings since public transportation is
prevalent in many parts of China.
The more we think about the oil
prices, the more is the realization that
the pace of demand for oil and gas
governs the availability and access to
supplies, technological developments,
production costs, and government
policies. The interdependence
between demand and supply cannot be
ignored while considering the effects
of fluctuations in oil prices on the cost
of commodities. TWA
Winners of the 2014 SPE Young Member Outstanding Service Award (YMOSA) at the SPE Annual Technical Conference and
Exhibition in Amsterdam, The Netherlands. From left: 2014 SPE President Jeff Spath, Amber Sturrock, Ning Liu, Siddhartha
Gupta, Manish Choudhary, Matthew Balhoff, and Ghaithan Al-Muntasheri.
2014 YMOSA Winners Share Their SPE Experience
Amber Sturrock, Subsea
Umbilical Engineer, Chevron
I am honored to be recognized at an
international level by my peers for my
years of service to SPE. My involvement
with SPE has greatly expanded my
professional network, which has led
to some amazing opportunities in
my career.
Favorite volunteer activity:
Perhaps, my favorite endeavor was
serving on the organizing committee for
an SPE Applied Technology Workshop
on Deepwater Operations – Post Drilling
& Completions held in 2012.
My message to young
professionals (YPs): Take an active
role in any professional organization to
which you belong.
Ning Liu, Subsurface Team
Leader, Tengizchevroil
I felt grateful to the colleagues and
friends who initiated and supported
the nomination. I am privileged to
have received this award among many
deserving YPs. We all should take a
moment out of our busy schedule to
acknowledge and recognize our peers
for their outstanding achievements.
Favorite volunteer activity:
I have been an SPE technical editor
since my early years in graduate
school. By reviewing technical papers, I
gain new perspectives in various
technical areas, and this helps me
improve my technical leadership
skills and build a professional network.
In turn, I am able to better serve SPE
with increasing influence, from being an
Outstanding Associate Editor for SPE
Journal in 2009 to becoming a program
committee member for SPE conferences.
My message to YPs: As the
Chinese saying goes: A journey of one
thousand miles begins with a single
step. Enjoy the work assigned to you,
always keep a positive attitude, and
give your 110%.
Matthew Balhoff, Associate
Professor, University
of Texas, Austin
Winning the award is truly a great
honor. The award ceremony was a once
in a lifetime experience and it was
an opportunity to be in the presence
of so many people who have made
huge contributions to the industry
and SPE.
Favorite volunteer activity: I
attended my first SPE Annual Technical
Conference and Exhibition (ATCE) in
2002 in San Antonio as a student and now
I try to attend every year. The ATCE is a
great way to network, participate in and
view technical presentations, and learn
more about cutting-edge technology in
the oil and gas industry.
My message to YPs: I recommend
YPs to try to gain a broad experience
in the oil and gas industry by working
in all upstream areas (e.g., drilling,
reservoir, and production). I also suggest
getting involved with SPE early, whether
it be through volunteering or attending
technical meetings.
Manish Choudhary, Reservoir
Engineer, Royal Dutch Shell
YMOSA is quite a privilege and I
am very happy to be selected for the
award. The award re-energizes YPs to
get more involved in SPE activities. I
am also looking forward to mentoring
upcoming YPs to take advantage of
SPE programs and activities.
Favorite volunteer activity: For
the past several years, I have been
involved with the Young Professionals
Coordinating Committee. As part of
the committee, I helped organize a YP
workshop at the 2014 ATCE, mentored
new sections to start YP programs, and
I am currently helping to improve the
Ambassador Lecturer program.
My message to YPs: Actively
participate in SPE events to stay updated
on new technologies. SPE offers lots
Vol. 11 // No. 2 // 2015
35
YP Newsflash
of opportunities to improve technical,
leadership, and soft skills. Make use of
them to connect with members across the
globe and to develop various skill sets.
Siddhartha Gupta, Software
Product Manager, Schlumberger
Winning the award was a great
experience and being in the same
room as the other distinguished SPE
honorees was a privilege in itself.
Being recognized is always a nice
thing, and now I have an even stronger
drive to contribute to SPE at local and
international levels.
Favorite volunteer activity:
Serving on the YP board of the SPE
Gulf Coast Section was perhaps the
most exciting phase of my SPE career.
This position also helped me grow my
professional network and connect with
other individuals in the oil and gas
industry working in the Houston area.
My message to YPs: I have
met some of the best technical and
management professionals in my career
through SPE, so my first suggestion to
the YPs would be to consider SPE as a
group of highly talented individuals who
can act as your mentors and sounding
board. Start connecting with them
today. Secondly, talk to the members
of your local chapter and start getting
involved. By going to more events, you
can meet more YPs who will motivate you
and perhaps even guide you to a new
opportunity within the local chapter. And
lastly, for those who are already actively
involved in SPE, my advice would be to
try new things. For example, if you are on
the YP board, try applying for the TWA
editorial committee. SPE has so much to
offer that working in one specific area
gives you a limited perspective and does
not allow other interested individuals to
get involved.
Ghaithan Al-Muntasheri, Team
Lead, Production Technology,
Aramco Research Center
I am extremely happy to bring this
honor to SPE Saudi Arabia Section
Soft Skills
blanket management decision. If you
happen to lose your job, do not lose your
nerve. Though this is easier said than
done, take solace in knowing that all
commodities are cyclical in nature as
supply and demand cycle continuously
in an attempt to find equilibrium. History
shows the oil and gas industry will
continue to thrive and evolve, and so
will the many jobs that are required to
support it.
There are two main pitfalls to avoid.
The first: Try not to take the easiest way
out. Many people do just that. They start
looking for a quick fix. By accepting
the first job that comes along, they are
simply postponing their problems. They
risk getting stuck in a job they know in
advance that they may detest. Today’s
quick-fix solution becomes tomorrow’s
enduring nightmare.
For you, it may be better to explore
options such as furthering your
education, freelancing, consulting,
36
(SAS) as well as Saudi Aramco
and Aramco Research Center,
Houston. Commitment and creativity
are the hallmarks of research
and development professionals.
Volunteering with SPE has always
been rewarding and to be recognized
for contributing is something I
never imagined.
Favorite volunteer activity:
I think one of the greatest volunteer
activities has been with SAS. I have
helped to double the size of the section’s
membership and actively served as
chairman in 2012. During that time we
had more than 4,000 members and I had
the privilege of overseeing more than
100 events.
My message to YPs: Get involved.
SPE offers you unlimited opportunities for
personal and professional development.
Involvement in SPE has helped me to
grow and contribute to the advancement
of industry knowledge. It has also
been a source of pride for my company,
Saudi Aramco. TWA
Continued from page 29
or even a part-time or temporary
job, especially if you want to stay in
the industry. The key is to maintain
employability and this direction could
help update and round up your skill sets.
The second pitfall is more
psychological. When people do not
have an income, they start looking down
upon themselves. Debts may weigh
heavily on their mind and prompt them to
make suboptimal financial decisions. Try
to have an emergency fund to fall back
on in case of a job layoff. If you decide on
pursuing a career outside the petroleum
industry, think creatively about your
strengths and how to apply them to
other work environments. This would be
necessary to keep you directed toward
finding something you will enjoy doing.
Volunteering During a Downturn
Has Career Benefits
Low oil price can put a remarkable
strain on volunteers’ enthusiasm. This
should be expected when your job is
on the line, and volunteering does not
put immediate food on the table in quite
the same way as a paycheck. However,
volunteering does provide clear benefits:
It enhances your industry network,
develops leadership skills, provides a
résumé boost, and gives you access to
technical information.
SPE is a great organization in which
to begin volunteering, with opportunities
on local section committees,
conferences, outreach programs, and
more. You never know how the next
person you meet could positively impact
your career.
*Gupta, S. Oil Price—The Other Side
of the Fulcrum. LinkedIn Pulse. https://
www.linkedin.com/pulse/oil-price-otherside-fulcrum-siddhartha-gupta?trk=profpost (accessed 15 April 2015). TWA
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