Geoscientists peer into the crystal ball

We hear so many varying opinions in the mainstream media about the energy industry that it is hard to tell if it will be feast or famine in the days ahead. So we at SMT thought it would be interesting to avoid the “talking heads” and survey some “thinking heads” about where our industry is going. Over the last two years, SMT has conducted surveys at Society of Exploration Geophysics (SEG) to see if geoscientists could read the tea leaves and predict the future. And looking at the accuracy of previous prognostications, 2010 looks good for the industry.

Way back at SEG 2008 in Las Vegas, our geoscientists could have made a nice return picking future oil prices – during one of the most volatile periods in history. SMT asked them to predict prices one year into the future, choosing amongst ranges of above $150, between $100 and $150, between $50 and $100, and under $50. To set the stage, remember what was happening to the industry at that time. Just that summer oil was trading above $140 a barrel. Yet by SEG, in precipitous decline, we were heading below $70 – a 50% decline in just a few short months. At the same time, the global financial collapse was in full swing, so the future of oil prices looked gloomy to say the least.

Yet less than 4% of the 110 geoscientists surveyed succumbed to the prevailing pessimism and felt we would be trading at less than $50 a barrel in a year. In fact, 74% of respondents correctly chose the trading range as falling between $50 and $100. And sure enough, oil traded around $75 a barrel during that time period.

So what does our prescient cadre of geoscientists say about the coming year? Well, at the most recent SEG in 2009, we asked attendees to take another look. The consensus, 67% of the 120 respondents again chose between $50 and $100 a barrel. But this time, not a single respondent believed we would be under $50. As further proof of the growing optimism, 33% now believe oil will be above $100 barrel in the fourth quarter.

With this kind of unblemished track record, we could not resist asking the geoscientists to gaze into their crystal ball a few more times. So, we also asked them to predict oil prices five years from now. Our soothsayer scientists see prices continuing to climb by 2014. The vast majority, 74%, see oil above $100, with 55% of them pinpointing the $100 - $150 range as the likely scenario, and the remaining 19% seeing us north of that.

And what do our amateur market analysts have to say about the persistent notion of peak oil? There we have a bit of a hung jury. Half of respondents believe peak oil is 10 or more years away, with a large subgroup seeing it more than 20 years out. Demonstrating the polarized perspectives on this issue, amongst the other half who believe peak oil will occur earlier, 13% believe it has occurred already. So, almost as many people believe peak oil has arrived as believe it is more than 20 years away! This seems to be a debate without a clear consensus amongst our cohorts.

The SMT survey, however, concludes with one clear and optimistic note. We asked whether exploration budgets were likely to increase, decrease, or stay the same – both in our 2008 and 2009 survey. Predictably, in the 2008 survey the minority, 42%, expected increases in budget in the year ahead. However, in our more recent survey, 60% of respondents expected to see increases in budgets in 2010. So the tide is turning.

Of course we will be able to evaluate how well the geoscientist track record holds up by SEG 2010 – and SMT will be running its annual survey again at the convention in Denver. So drop by our booth to share your perspective and see if you can be the next Jim Cramer. Of course, if last year’s predictions hold true, we will all be making…Mad Money.

Indy Chakrabarti
Director of Marketing
SMT

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].