Most oil companies now have a new problem, a wonderful problem - bulging bank accounts. Years of restructuring, cost-containment, and efficiency programs to meet shareholder's stiffening evaluation standards enabled them to weather the economic cyclone of the late 1980's and breakeven at survival prices around $15/bbl. This past Spring's dip into $12/bbl territory delayed many new investment programs.
Now the winds have not only calmed, but are blowing strong and steady at $18/bbl plus. This is filling the corporate sails with dollars and the holds with profits. What will they do with this growing surplus? Here are their options:
- Split it with governments (taxes etc.)
- Distribute some or most to shareholders
- Reward management
- Acquire other companies
- Build new businesses
- Invest in projects
- Invest in technology
- Invest in research
- Invest in people
The choices will tell volumes about the companies' corporate values and goals for the near future, and their differing views of the more distant future.
Lost loyalty costs thinking capacity
Business units, project-based accounting, joint operations, alliances, teams, and outsourcing all have been used over the last 10 years to squeeze the cost side of oilfield projects. Millions have been saved. However, that savings didn't come without cost - time-delayed, structural, and ultimately very expensive. It involves the most valuable asset any company has - the thinking capacity and creativity of its employees.
Because management was unwilling or unable to place a market value on this "soft" asset, and "communicate" that value to stockholders, corporations severely reduced their headcount. They reduced the in-house intellectual resources under their control. They destroyed employee goodwill built up over 20-30 years of faithful service. Those freed intellectual resources are now being utilized by multiple companies through outsourcing and consulting arrangements.
While this more atomistic approach encapsulates project costs for accounting purposes, the operating company often pays more than if it had used in-house employees to get the job done. The operator never gains the benefits of:
- Accumulated in-house techniques
- Special skills
- Operational insights
- Data security
More importantly, ideas and interpretations from the project leave in the minds of the outside experts used on each project. The short-term benefit is the direct savings from efficient project development and shorter time to positive cash flow. The price companies are paying for the sacrifice of corporate loyalty is the long-term value of accumulated wisdom.
Expanding survey market
The global metaocean and coastal survey market is set to expand, according to Douglas-Westwood Ltd of Canterbury, UK. The total market is expected to expand by 32%, from 1999 through 2003, to a total value of £901 million, while the oil and gas component will expand 26% to £263 million."Much of the global activity is still carried out by navies. We don't believe the use of naval vessels is the most cost-effective way to gather navigation data for the world's mariners," Westwood states. "The commercial development of new technologies is expected to continue to have a major impact on the industry." Electronic charts supplied on CD-ROM or data cartridges are now displacing paper charts on many vessels. (Contact Douglas-Westwood Tel: +44-1227-831879, Fax: +44-1227-832092 or Website:www.douglas-westwood.co.uk).
A pound of cure
Oil has preserved iron from the elements for years. Now iron is teaming with oil to preserve wildlife. Research work done at Victoria University of Technology in Melbourne, Australia demonstrated that iron powder is effective in de-oiling bird feathers. Oil binds to iron, in preference to feathers. This makes de-oiling as simple as dusting the soiled bird with iron powder and combing it with a magnet. The approach was shown to remove up to 97% of the oil from feathers. The process is easy on the birds and preserves their feathers.
Governments are attempting to control the burning of carbon-based fuels (through taxation) to limit atmospheric temperature increases. The reason? Carbon dioxide is touted as the major greenhouse gas with a disproportionate effect on the temperature of the atmosphere. Researchers in recent articles (Science) are questioning the validity of this global warming axiom.
Data from boron and carbon isotope studies of plankton, and carbon isotope studies in frozen birch leaves show that carbon dioxide levels rose during past glaciations - contrary to the prevailing theory. Of the many possible explanations for this is the effect of continental plate movement on the circulation of the oceans. This movement affected the heat transferred to the atmosphere, and thus its temperature. The theory of global warming is still an area of research in its formative stages, unsuitable for broad government initiatives.
Carbon dioxide hydrates
A different solution to "global warming" is an initiative testing the deepsea burial of carbon dioxide. Experiments off the US California coast showed that carbon dioxide hydrates are stable below 430 meters and 8°C. Long-term storage and diffusion of CO2 into the oceans is attractive because of the oceans: size (volume), buffering capacity, long circulation times, and favorable equilibrium with the atmosphere.
Carbon dioxide would have to be captured, cooled to liquid, and deposited in secure deepwater locations. By locking away carbon dioxide, it is thought that the atmospheric carbon dioxide, balance could be maintained at or near present levels.
Grabbing for size
TotalFina continues with the consolidation of the oil industry by attempting a 42 billion euro hostile takeover of Elf. The combined companies would have a strong presence in Europe, the Middle East and Africa. Thierry Desmarest, Chairman of TotaFina, was quoted, "We couldn't let this opportunity pass. The goal is to count in tomorrow's world alongside the three super-majors."
If successful, the hostile merger would create the fourth largest oil company behind Royal Dutch/Shell, Exxon, and BP Amoco. Expected savings could be as much as 1.2 billion euro without large-scale layoffs. The move would entail only 4,000 layoffs initially, less than 5% of the combined 130,000-person workforce.