Who does this industry belong to? Over years of boom and bust cycles I have come to realize a truism, “Things belong to those who take care of them.” Ownership is not claimed by those intent on making a quick turn-around financial gain, or those who impose gridlock controls and dictate rigid policies. Ownership is the result of nurturing and caring. Ownership belongs to those who collectively participate.
Is this indicative of what is happening in our industry? Look back over the past few years. The industry is characterized by old-timers who call the shots, making it difficult for new-comers to get a foot-hold, operators clashing with contractors over profits, national oil companies (NOCs) limiting international oil companies (IOCs) access to their reserves, oil corporations driven by Wall Street perception rather than by consumer satisfaction, and so on. It seems as though a combative rather than a collaborative relationship has become the order of the day. But years of fierce competition have come at a price and have left a bad taste. For our industry to thrive, it is time to discard this combative approach and replace it with relationships based on mutual benefit and collaborative relationship.
Today’s industry boom comes with a challenge as the quest for energy keeps rising. With collaboration, we can solve this quest and come out ahead. Webster’s Dictionary defines collaboration as “to work jointly with others, or to cooperate with an agency or instrumentality with which one is not immediately connected.” Unfortunately, as an industry we have failed to realize just how connected we are to each other. Another definition of collaboration is “to cooperate with or willingly assist an enemy.” Often the enemy we perceive is actually our counterpart, aspiring to reach the very same goals that we are pursuing.
I am reminded of a parable. A hunter is lucky enough to shoot down a golden bird, but it falls miles away from him at the feet of a scientist who is studying wild life. The scientist rescues the bird, planning to keep it as a pet. Meanwhile, the hunter arrives on the scene and claims that the golden bird legally belongs to him since he shot it down and has a valid hunting license. The scientist claims that the bird morally belongs to him since he saved its life. The two men quarrel: whose bird is it? The arguing men decided to ask a wise man to resolve their conflict. The wise man convinces them to let the bird fly away, explaining that over the years the bird will multiply in number and there will be plenty to shoot and plenty to keep as pets.
Who does our industry belong to? Let’s look at some of the conflicting perspectives we have generated in recent years.
•Old-timer versus new-comers: Does the industry belong to those who have just jumped on the bandwagon, bringing with them fresh new ideas and hoping to make a killing during these boom times? Or, does it belong to those who have been here for a long time and have weathered many cycles? Some of these old-timers make no pretense about working within their own cliques, fostering the “good old boy” network, and forcing the industry to conform to the way they want to operate.
•Operators versus contractors: Do operators own oil production, and, therefore the industry, and do they have the right to the lion’s share of any profits? Or, is it up to contractors to demand a greater share of this wealth? After all, contractors argue, it is through their efforts and their willingness to take risks that oil is produced.
•NOCs vs. IOCs: Does the industry belong to NOCs, who sit on massive “golden bird” reserves, or to the IOCs, who have developed cost-efficient and effective strategies for developing reserves?
•Oil corporations vs. government organizations: Should the oil corporations be allowed to keep their record windfall profits? They argue that they must struggle to survive during the bad years, and therefore, have a right to record profits when times are good. Or, should these profits be skimmed off in taxes by the government whose job it is to alleviate consumers’ woes by attempting to control the rising price of oil?
All these entities have valid points. But if the industry is to succeed as a whole, we must first resolve our conflicts. Collaboration needs to happen at all levels.
• Old-timers need to accept new ideas and new blood into the industry. This will take more than merely hiring individuals to meet the personnel shortage. It means investing in solid training, giving new employees the opportunity to voice new ideas, mentoring them and encouraging them. New-timers, for their part, must recognize that boom times are not the industry benchmark. They must understand that the industry is characterized by fluctuations, and they must be prepared to commit to the long-term.
• Operators and contractors should align their business models to ensure that success is rewarded at both ends. Operators cannot expect to transfer development risks to contractors without also rewarding them when ventures are successful. But neither is it justifiable for contractors to demand more money in response to rising oil prices. Contractors need to ensure that their requests for a share of these profits are reflected in the value of the services they provide.
• Similarly, NOCs should realize that amassing reserves is not a priority. The solution lies in producing and bringing hydrocarbons to market. For years IOCs have known and done just this; the IOCs may appear to be the enemy, taking NOCs’ reserves, but in reality they have the expertise and ability to reduce costs and deliver the product to market. Working together, both NOCs and IOCs will benefit.
• Finally, oil corporations should educate the public. Record profits do not necessarily equate to greediness. The oil corporations are here for the duration and have a vested interest in serving consumers. The oil corporations’ strategies should be aligned to producing oil and bringing it to market, not merely reporting reserve gains and impressing Wall Street. On the other hand, government organizations need to understand that taxing oil companies’ record profits in boom times is not a solution. On the contrary, public policy should recognize that encouraging oil companies to invest with a view to increasing production, particularly during times of rising oil prices, is the most effective strategy for curbing rising gasoline prices at the pump.
It is time for all parties to sit down together and develop joint strategies that encourage investment back into this industry, and which benefit both the industry and the consumer. It is our industry. Unless we start collaborating rather than competing in an effort to defend our own turf, we may find that we end up loosing ownership of not only our own individual segments, but our industry as a whole. It is our industry if we are ready to collaborate.
Sandeep Khurana, P.E.
[email protected]
This page reflects viewpoints on the political, economic, cultural, technological, and environmental issues that shape the future of the petroleum industry. Offshore Magazine invites you to share your thoughts. Email your Beyond the Horizon manuscript to Eldon Ball at[email protected].
