The Future of Offshore TechnologyOTC 2005 Special Session on Technology Valuation

Houston, TexasMay 5, 2005

Presented by:Matthew R. Simmons

Source: Baker Hughes.com

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Offshore Technology Has Come “A Long Way” Since OTC BeganOffshore 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 DecadesAchieving 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”

Lots Of Stakeholders “Fought The Good Fight”

OTC Picture

Petroleum equipment companies

The “Labs”(Universities;

government R&D labs)

R&D labs at major oil and gas

companies

Oil service companies

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Who Paid The R&D Bill?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”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 EightiesThe 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 IllusionsThe 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)

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 ToughSurviving 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?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 SteepThe 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 leap-frog current programs (but what does this mean?)

People, people, people are the sherpas for this trek.

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Some Breakthrough ThoughtsSome 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 PaidThe 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

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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