There is a mini-tempest brewing over Halliburton's announcement that it will move its headquarters to Dubai, as chief executive officer Dave Lesar sets up an office there (although other key executives will remain in Houston to oversee operations in the Western Hemisphere).

This decision is a wake-up call to the industry and to Washington. Like famed bank-robber Willie Sutton, Halliburton is going where the money is, and who can blame it for that?

It's another signal that the world oil game has changed. Drilling activity in the Eastern Hemisphere is on the upswing because that's where the reserves are-and a huge portion of growing oil production too. Russia, Azerbaijan, Kazakhstan and Angola will account for most of the increase in oil output from non-OPEC sources in the near term, says the International Energy Agency. In this hemisphere rest only two similarly significant growth areas: Brazil and the Canadian oil sands.

Not surprisingly, the IEA's mid-term forecast calls for above-ground risks to exceed below-ground risks, with the biggest exposure being resource nationalism, ethnic violence, land access and fiscal uncertainties.

Meanwhile, the national oil companies (NOCs) dominate world reserves, representing the top 10 reserve-holders. They also are starting to dominate world oil and gas production, according to a new study from the James A. Baker III Institute for Public Policy at Rice University, and they are much more active outside their borders through joint ventures, concessions and acquisitions.

"The IOCs [international oil companies] are still important, but their influence is waning as their three primary competitive advantages (balance sheet, technology and project management) have been marginalized," Houston-based Simmons & Co. International reports.

"The NOCs represent the fastest-growing customer segment for the larger-cap diversified service companies leveraged to international growth. They have now become the most important segment for the international service industry," the firm declares.

International activity is the growth area while North American action is the bread and butter. Take the case of the other large oilfield-services firm, Schlumberger. In 2006 it acquired Russian oilfield-service firm PetroAlliance Services and opened an electrical, submersible, pump manufacturing facility in Tyumen, Western Siberia. It also opened a world-class carbonate-research center in Dhahran, Saudi Arabia, last year. Now it is building a new technology center in Novosibirsk, Siberia.

Expenditures within the Russian drilling, seismic and workover industries rose to some $11.4 billion in 2006 and this is forecast to double to $22.5 billion by 2011, U.K. energy-analysis firm Douglas-Westwood Ltd. reports.

Another aspect of globalization is the changing nature of the oil industry's employees. In the past two years, Schlumberger has recruited more than 5,000 new engineers from 80 countries, according to chief executive Andrew Gould's annual letter to shareholders. It will train them at new centers just opened in Tyumen and Abu Dhabi.

The U.S. may never again graduate enough engineers and geologists for our needs, when compared with the number of graduates in other oil-producing countries. That's why we have to compete on another, higher level through our vast computing power, and the free and nurturing atmosphere for innovation, risk-taking and experimentation.

I'd like to suggest that the 22 private-equity funds cited by COSCO Capital Management in this issue that have $17.3 billion of uncommitted capital at their disposal, devote a much higher percentage of that to breakthroughs in traditional oil and gas finding, energy-efficiency gains or alternative fuels.

It's not just the oil companies and their oilfield-service providers that are operating in countries all over the world. IBM has opened five facilities geared specifically to oil and gas in Calgary, Abu Dhabi, Stavanger, Moscow and Beijing. In February in Dubai, Marsh Inc. held its first risk-management and insurance conference focused on the NOCs.

Global competition can drive costs for goods, services and human capital (think outsourcing) down. In the oil industry, however, it drives the price of commodities, goods and human capital up. It is disquieting to see the world change before your eyes due to globalization, and to realize that someday we may no longer be the top cat.

We need to get over it. Just compete, persevere and innovate.

"I'd hate to fathom where the U.S. would be if all we had to do is conventional gas drilling. If you're going to work in unconventional reservoirs, you have to leave conventional thinking behind," advised Trevor Rees-Jones, chief executive of Chief Operating LLC, speaking at Hart Energy Publishing's Developing Unconventional Gas conference in March.

"Very little happens in this industry without perseverance."

Comments