The oil and gas industry lives (and dies) by supply and demand figures. Alas, global aggregate data on oil supplies is inexact at best, and downright misleading at worst. For example:
- Storage: Amazingly, aggregate storage seems to be a nebulous figure. If tankage estimates are a matter of subjective judgement, who knows what the cumulative storage figures reflect. Of course, this assumes that everyone's approach to reporting is the same, which we now know is individually, culturally, and morally subjective.
- Metered or not: On the positive side, assembling production figures is as simple as reading custody transfer meters. On the negative side, there is an embarrassing lack of such equipment in the field, and especially in remote locations. For the sake of internal analysis and shareholder reporting, accurate readings seem critical, but the surprise is that not all producers are concerned.
- Production estimation: Where custody metering is non-existent or functions improperly, producers rely on estimations from transporters, which can be suspect (not by design, of course). At the field level, production cycles up and down, depending upon the condition of the reservoir and equipment, multiphase measurement is inherently anomalous, and huff-and-puff production techniques, workovers, and production train overhauling make estimating challenging.
- Politics: Too often, cumulative production figures are part of the national political process, to be massaged and masticated to favor some agenda. Data analysts often are presented with flow reports from three different sources - producer, transporter, and government - but find awkwardly that none of the three agree, and sometimes are far apart.
- Reporting measures: Are NGLs counted with crude? How are we to know? Sometimes, natural gas production is converted to BOE and rolled into the liquids figures - then when the error is noted, the gas is backed out, but the liquids figures continue to be reported in the original. Also, is it metric tons or bbls - some reporting sources switch between the two and report out the incorrect measurement labels with a sevenfold error rate.
Confusion? You bet. It is no surprise that the global supply figures used for decision-making can be off by as much as 5%. Despite the reporting errors, the aggregate supply numbers do reveal trends, and this has saved the process - so far. But a cascade of forces (spot and future oil price forecasters, asset managers, investment houses) is bearing down on the reporting process, and the demand for standardization and accuracy tracking is gaining momentum.
Decapitation
Institutional history and corporate memory are labels applied to the process of understanding causality and context underlying the historical events and cycles that drive a corporation's business. When corporations are unable to bring a historical perspective to bear on business events and cycles, the result is often - well - decapitation.
Not helpful for the oil and gas industry is that project time horizons often transcend a single managerial generation - which can be only 5-8 years. Also, when oil and gas product prices collapse, as all commodities do, they produce significant shrinkage among key employees - and institutional memory.
Institutional memory is too often viewed as a sign of management in deep sleep, but it is quite the opposite when put to work in the right conditions. Some of the most successful corporations have managed to fuse an employee generation with lots of corporate memory and perspective, but little inclination to take on risk, with younger employees with little perspective, but lots of energy and ideas for risk-taking.
On average, new companies rarely survive first encounters with major technology or cultural changes in the marketplace. To do so requires a re-organization and re-focus made difficult when a company has lost touch with the instincts and tactics that helped it survive "infant mortality."
Moreover, corporate longevity, even when the earliest products have long-ago disappeared from the market, creates valuable recognition and good will. An aura of quality and reliability are especially important when services or products are otherwise undistinguishable, and this is especially true in the oil and gas business.
Unless preserved and used in a deliberate manner, corporate memory fades with retirement and change of personnel. Then, companies have to pay a price to re-learn perspective.
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