From the President- April 2010

Innovate and Create But Do Your Homework
Laissez Les Bon Temps Roulez!! Yes, it’s AAPG Convention time in New Orleans! What a year New Orleans is having! First they won the Super Bowl and now they are hosting the AAPG Convention! It just doesn’t get any better than that! The convention promises to be a good one with some innovative talks.
Innovation is one of the hallmarks of our industry. Finding oil is always a good thing (unless of course, it is under your car when you walk out of the office in the afternoon). Finding oil in a place or formation where “everyone” knows it doesn’t exist is fantastic! Usually such a find starts with a wild idea some geologist, who obviously didn’t pay attention in college or he would know better, puts forth to explain something that he/she can’t explain otherwise. The geologist is usually soundly chastised for proposing such heresy and sent back to his office to think about the error of his ways. The trouble is that the idea can’t be put back in his head and as an idea will do, it sticks with most who have heard it. Somewhere in the back of their minds the other geologists have another thing to be looking for and a few may even start finding it. This makes them start pondering the “wild” idea more seriously. After a time the idea has become less wild and more in the category of ‘possible’. Eventually some geologist manages to convince management to risk the wild idea by drilling a well. This usually happens because management is desperate to find a place for the rig they have under contract or they are tired of hearing the geologist go on about the prospect year after year, or some combination of the two. The prospect gets permitted which is of course of public record. At this point something interesting starts to happen. Like a group of penguins on the edge of the ice cliff all the other oil companies start crowding around. Like the first penguin going into the sea, the first company starts to drill the well. The other penguins watch. Will the first penguin get eaten by the everpresent sharks? The well is successful and just like the penguins all the companies start jumping into play. Managements of other companies are now busy trying to explain why their company didn’t see such an obvious play! Never mind that their own geologists had seen it and been unsuccessful in convincing management to go forward. The race is on.
Leasing becomes a frenzy with speculators getting into the fray. This scenario has repeated itself many times. I remember at the dawn of my career, back when 2½ D seismic was cutting edge and everything was done on paper sections, the Tuscaloosa was the ultimate play. Farmers were becoming millionaires over night just from the leasing bonus. Many companies did very well early on, but eventually companies had pushed it further just to get leases, and like sharks sweeping through the penguins the dry holes started taking their toll. The companies that did the best were those who committed time and resources into understanding the play prior to jumping into it. The Tuscaloosa plays of yesterday are the shale plays of today. The frenzied activities of the shale plays is breathtaking to watch. The investment advisors and investment magazine editors have extolled the virtues of having “dry hole” proof plays that stretch for miles on end. Their theme song, “One simply has to drill a hole, put a pipe in the ground, a valve on top and voilá instant money!” Not only that, but the reserves can produce at a steady rate for 20 years! This allows the bankers to plug in numbers and make projections that they and their investors can count on. That’s the plan at any rate.
Geologists, of course, know better. Shales are incredibly complex. The geologic variability is immense and requires dedicated geoscientists to understand them and where to optimally buy leases and drill wells. In addition, the shales come with their own set of problems, such as fracking, low producing rates which require large numbers of wells (all of which will require remedial work and plugging at some point) and they are manpower intensive. The shale wells, due to their typically low production rates are even more susceptible to gas price fluxuation than those producing from conventional reservoirs.
Don’t get me wrong. I am not dogging the Shale Plays. They can be a viable part of a company’s portfolio, if the company can look past the hype and invest in real geologic analysis by geoscientists who have actually worked these types of plays. Unfortunately I fear many companies are not doing the geologic work that would be required in any conventional play, because their management has the “sure thing” mentality about the shales. The shales are not sure things, as any geologist who has worked them will tell you. The companies that put honest geologists in the forefront of any play decision or acquisition are the ones that will succeed. As in any other play, there will be winners and losers. The big winners will be the companies that did their homework, listened to their geoscientists, took educated risks, and got into the play before the feeding frenzy began. The losers will be those who simply followed the crowd.
In the meantime we geologists are busy thinking up wild ideas. Somewhere, someone is trying desperately to convince their management of a wild idea that will eventually turn into the next Tuscaloosa, deep gas, sub-salt, or even shale play!Happy Hunting!

Gary Coburn
Monday, April 12, 2010
From the President