Source: Baker Hughes.

com

The Future of Offshore Technology

OTC 2005 Special Session on Technology Valuation
Houston, Texas
May 5, 2005

Presented by:
Matthew R. Simmons

Offshore Technology Has Come

A Long Way Since OTC Began

Water depth limits became boundless.

Robotic technology exceeded the space age.

Subsea production systems created product hubs.

Drilling technology made vertical wells obsolete.

Reservoir drainage technology created just-in-time supply.

3-D seismic/reservoir simulation created picture-perfect reservoir models.

Rig efficiency soared.

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Achieving Victories Took Three Decades

Most first generation work on all great gains

were experiments in early 1970s.

Commercialization began in the 1980s.

Adoption as disruptive technology on global scale

happened in the 1990s.

Energy technology is different than Silicon Valley

technology.

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Lots Of Stakeholders
Fought The Good Fight
Petroleum
equipment
companies

Oil service
companies

OTC Picture

R&D labs at
major oil and gas
companies

The Labs
(Universities;
government R&D labs)
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Who Paid The R&D Bill?

This remarkable technology boom

created vast wealth.

It added at least 25 million barrels per day

more oil (9.1 billion/year X $50 = $450
billion/year of wellhead revenue.)

The oil service industry collapsed.

The E&P industry shrank.

Energy financial returns were abysmal.

The labs shrunk in staff, funds and

incoming talent.

Did the consumer stiff R&D?

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The OTC in 1982:

The Great Carnival

Attendance exceeded 100,000.

Thousands of new exhibitors displayed copies of

great products.

The snake is eating its tail.

Walter Losk (Trico Chairman)

Cinderella's Ball ended 121 days before the OTC

began.

The industry was spinning into an abyss.

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The Tragic Eighties

The OTC almost ended (odd/even displays.)

Most 1982 exhibitors collapsed or disappeared.

New hires were laid off.

Survivors needed to perfect technology to survive.

Survival of the fittest finally worked.

By 1990, the survivors started limping home.

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The Nineties: A Decade Of Illusions

The only thing we have to Fear is FEAR itself.

The phony fear collapses:

Natural gas in 1992
Oil in 1993
Oil in 1998/early 1999
Oil/natural gas in late 2001/early 2002

With each collapse our energy noose was tightened

even more.

Meanwhile, technology gains ended and technology

results got misunderstood.
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What Technology Accomplished

(Perhaps)

3-D seismic obsoleted many dry

holes.

The rig of today is like 8 rigs of

yore.

Appraisal wells shrank and few

were cored.

By spending less, we found

more.
Surging wellhead supply got confused with sustained supply.

Peer group F&D cost competition intensified.

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Surviving The Fog Years Was Tough

Oil service financial returns were terrible.

Adding any new units was deemed stupid.

Recruiting came in fits and starts, followed by lay-offs.

E&P companies grew in size beyond the drill bit.

Adding proven reserves was easy.

Growing production became very hard to achieve.

Bitter relations between E&P industry and vendors

deepened.
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Quo Vadis Offshore Technology in 2005?

Can the technology black board reinvent itself?

Can the industry replace a lost generation of

people?

Can a reformed pricing regime provide safe, fair

returns for those creating technology?

Can a peace treaty be brokered between oil

service providers and drillers and those who use
these expensive, risky, high technology services?
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The Path To Sustainable Energy Is Steep

We need to gear up for a long trek.

Access is more important than

marginal technology gains:
North American OCS
Deep horizons held by shallow
production

Breakthrough R&D needs to leapfrog current programs (but what

does this mean?)

People, people, people are the

sherpas for this trek.
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Some Breakthrough Thoughts

Changing unconventional oil and gas into

conventional with no energy intensity.

Harvesting brine as it replaces cheap oil.

Creating an inexpensive way to core appraisal

wells.

Practicing conservation without cutting

production.

Inventing new forms of energy.

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The Piper Will Finally Get Paid

Reality economics finally

prevail.

Energy prices need to rise to

a level that triggers an
explosion in genuine R&D.

Will SPUTNIK light up our

energy skies?
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Our Panel Has Some Genuine

Challenges To Address

Have we sowed the seeds to

end offshore technology
gains?

Is the industry capable

(mentally, physically and
financially) of staging a great
come back?

Is our energy hole too deep?

Who will carry the heavy

water up the hill?

Will they get repaid?

2005

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Investment
to the

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nergy
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