This industry can take great pride in the technological accomplishments of the past 20 years. Advances like 3-D seismic, horizontal drilling and deepwater technology - just the tip of the iceberg - have achieved remarkable successes. Our exploration success ratio is up to near 35% from a traditional 10% to 12%. Our recovery ratios read much the same, up from about 16% to near 35%.
During the past 30 years, we have gotten much better at finding and producing oil, so much so that we might now be one of our worst enemies - or maybe not.
The graph below charts oil prices (in money of the day) from 1971 through 2001. Overlaid are lines showing the dramatic increases in exploration success and improved recovery rates. Nothing new here, but when I put this together, I noticed something you also may have noticed - trough-to-trough cycle times for oil price fluctuations are getting shorter. And one of the reasons they are getting shorter is that we are getting that much better at finding and producing oil and bringing it to market in times of shortfall.
The question then becomes: What is the impact of a shortened cycle? I used this graph in a recent presentation and was asked, "Isn't that good for the industry?" I did not have an answer; I don't know. But I suspect that there is more negative impact from the trend than positive.
It's similar to information overload. What we once had 5 to 7 years to adjust to - an oil price cycle - it now appears we may have less than a year to adjust to. I have seen more than my share of "deer in the headlights" stares around the industry lately - you probably have too. I am beginning to think the shortening cycle may have left us dazed. Certainly that can't begin to explain lackluster activity levels in the face of decent oil prices and good US gas prices. But I think it may be a factor in much the same way a prizefighter can take one good hit a bout but not five or six in a short period. In the face of that sort of punishment in a shortened time frame, the ability, and will, to react fades.
If any of this has any ring of truth, then we may be our own enemy. And that would be ironic but unchangeable. Your comments are welcome.
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