FORECAST '96 Advisory Board focuses on managing technology, oil price risks during growth

Two common themes run through presentations by the individual members of Offshore's 1995-1996 Editorial Advisory Board - risk management in a technically challenging environment, and flat oil prices. Oil and gas are now commodities. As such, they drive out all excess and maximize competition, and at the same time, can cycle steeply in price levels based upon market perceptions. The latter situation pushes up risk for producers and support companies alike.


Individual challenges include deepwater, alliancing, education,
rig shortages, oil shortages, and the oil supply/financing ratio

Two common themes run through presentations by the individual members of Offshore's 1995-1996 Editorial Advisory Board - risk management in a technically challenging environment, and flat oil prices.

Oil and gas are now commodities. As such, they drive out all excess and maximize competition, and at the same time, can cycle steeply in price levels based upon market perceptions. The latter situation pushes up risk for producers and support companies alike.

Producers, service contractors, and manufacturers are developing different systems, strategies, and arrangements to maximize efficiency and better manage risk. Many of these arrangements, specific to each industry sector, appear in the following presentations by the seven members of Offshore's Editorial Advisory Board.


J. Phil Wilbourn is Texaco's Manager of Central Offshore Engineering, responsible for worldwide engineering, construction, and project management. He is a member of the E&P Forum, Oil Companies' International Marine Forum, and past president of the Offshore Technology Research Center's Industry Advisory Committee. He is also a member of the American Bureau of Shipping, the Deep Offshore Technology (DOT) Conference's Industry Advisory Board, Tennessee Tech University's Industry Advisory Board, and Texaco's Upstream Planning Group. He holds a BS degree in civil engineering from Tennessee Tech University.
J. Phil Wilbourn


E&C for many of us in the oil and gas business (Oops, it is now the gas and oil business, per the US Secretary of Energy.) means engineering and construction. Those of us in the construction end of the business have worked diligently on reducing cost and reducing cycle time. However, just as the meaning of the term E&P changed in the late seventies from exploration and production to environment and pollution, so has E&C now changed to mean education and communication.

The Shell Brent Spar debacle turned out to be an education problem with Greenpeace and the public which we, the industry, failed to communicate very well. There was nothing wrong with the original engineering and construction of the Spar. The structure served its owner and stockholders well.

Later, education and communication dialogue between Shell and Greenpeace revealed that they both had misunderstandings about the other's intent, and they are now closer to finding a workable solution. It is amazing what happens when there is a little E&C absorbed over a cup of coffee.

Public knowledge

How many times does this industry have to go through the Santa Barbaras, the Valdezs, and the Brent Spars, before we realize that showing people the fire escape routes after the house is on fire isn't very practical and isn't being proactive. The public wants to know, and maybe deserves to know, more about what makes our business tick.

The US petroleum industry recently took an exam in the form of a major study requested by the US Secretary of Energy entitled "Future Issues-A View of US Oil Gas to 2020" (strange she did not use the same product sequence she told us to use). The study identifies four broad categories of issues facing the industry in the next 25 years, one of which is "public understanding and opinion of the petroleum industry, which will be important in determining public policy and commercial success"

Rig shortage

On the subject of being proactive, when are we, as an industry, going to do something about the present and future shortage of deepwater drilling rigs?

The subject is like the weather - everybody talks about it, but nobody does anything about it.

How about a DeepStar-type joint operator/drilling contractor study where everyone sits around the same table and determines the industries true needs and forecasts for exploration, delineation, development and service wells? How about a group of operators agreeing to share a rig and guaranteeing the rig owner 95% utilization over five-seven years? What do you think would happen to rig rates? Aren't they a function of percent utilization?

The weight of history

I had a tough time getting through history in college because my professor said I wasn't interested in learning from the past. Twenty-five years later, I still think I was right. I see an industry weighted down with old paradigms.

We all thought the answer to making deepwater viable was higher oil and gas (there I go again) prices and lower cost facilities. Not so. What has made deepwater economical is higher per well producing rates.

Maybe we didn't educate and communicate the real economic drivers to the young technocrats who were coming along with their high powered PC's, rotating 3D models, and MBAs.

Encouraging "out-of-the-box" thinking and supporting ideas that have low risk-to-reward ratios is the only way, in my opinion, companies in this commodity business of ours can survive in the next century.

Use the same terms if you like, but change the meaning. If E&P and E&C can change, just imagine what changing the meaning of SOP can accomplish.


Larry E. Farmer is president of Brown & Root Energy Services (Halliburton) and responsible for the company's worldwide oil and gas engineering and construction business for production facilities and pipelines. The business employs 7,500 people. He has more than 30 years experience in structural and marine engineering, research and development, project engineering, project management, and executive management. He holds a BS in civil engineering from the University of Missouri and an MS and Ph.D in civil engineering from the University of Texas.
Larry E. Farmer
Brown & Root Energy Services


Oil and gas field development usually include the following functions: licensing, exploration, appraisal, reservoir definition, production concept selection, internal/external financing, development team selection, engineering, procurement/supply of materials and equipment, fabrication, selection of operations team, installation, subsea construction, pipeline installation, hookup and commissioning, operations, maintenance, product sales, modifications, and abandonment.

Often each function is done under a separate external contract or by a different department in-house. If external, the contracts are often awarded on the basis of lowest bid price and on a lump sum basis. If internal, the functional departments are often at different locations.

The functions are coordinated by teams of people in the field operator's organization, and the teams usually are different for the various stages of development. Often, no one in the operator's organization below the CEO has responsibility for the whole of the development.

Dozens, and sometimes hundreds, of contractual and functional entities are involved. In nearly every case, each entity is dedicated, directly or indirectly, to maximizing production (number of bbl) and cost (cost per bbl).

However; in most developments, the interfaces between functions (and other entities) are kept very simple, and information is passed from one function to another, only in one direction and often only upon completion of a functional responsibility, or in installments, as a functional responsibility is progressed.

Two-way communication

As technology has advanced, more functions have been introduced into field development because of functional specialties. This has further complicated the optimization beyond a given function.

The result of this traditional method of functional interfacing is that each function is optimized on the basis of the information known to it. It is rare that more than two or three functions have sufficient two-way communication to significantly optimize across the functions.

Of course, the selling price of oil and gas is not controlled by the pr ducers. Hence, the opportunity for an increased profit margin must come from reducing costs. Much work has been done to reduce the cost (optimize) of each function, and outstanding results have been achieved. This effort is continuing, and technological breakthroughs that yield order of magnitude savings in a function are becoming commonplace.

Matrix of functions

However, during the last two to three years breakthroughs have been experienced in optimizing more functions as a whole (a matrix of functions), particularly in the engineering, procurement, and construction functions. The results of this cross-functional optimization have been significant savings, often 20-30%.

These savings have been brought about by new modes of financial alignment and the application of new behavioral methodology. This mode of cross-functional optimization is often referred to as partnering or alliancing.

Cross-functional teams operating in a paradigm of alignment, high trust, high challenge, and motivated to common victory, have produced extraordinary results. Brown & Root is participating in alliances with British Petroleum, Conoco, Ampolex, Sun, and Qatar General Petroleum Corporation in projects having a capital expenditure exceeding $2.5 billion. Significant cost savings are materializing.

Optimizing more functions

To date in the industry, cross-functional optimization has involved only a few functions, usually in production facilities or subsurface functions. Brown & Root and Halliburton Energy Services are now working to optimize the facilities and subsurface functions as a whole.

This cross-functional optimization utilizing alignment and motivational methodology is expected to be applied to larger numbers of functions. Although the difficulty compounds with the number and diversity of functions, the results arc expected to be even greater than the 20-30% savings achieved to date. I believe that 50% savings are possible as more functions are included in cross-functional optimization. Such is the power of optimizing the whole.


Christian Marbach is chairman, president, and CEO of the Paris-based Coflexip-Stena Offshore. Before joining Coflexip in 1991, he was director of Sofinnova, chairman of the board of Anvar, chairman of the board Cité, des Sciences et de l'Industrie, and managing director of the French Ministry of Industry. He holds degrees from École Polytechnique, École des Mines, École du Pétrole et des Moteurs.
Christian Marbach
Coflexip Stena Offshore


The offshore industry has been experiencing low oil prices for many years, during which time the major oil provinces have reached a high degree of maturity. The challenge is now to bring onstream small or deepwater accumulations by the most efficient way to sustain offshore oil production.

Reducing offshore production costs in mature areas generally means lowering capital expenditure by the rational use of existing infrastructure and/or re-usable production systems. Here, subsea technologies will play a key role as subsea tie-ins or floating production systems are now considered as proven, reliable, and effective solutions.

Significant cost reductions will also come from new relationships that oil companies and suppliers/contractors are building. These are mainly based on a sharing of risks and rewards, but have a strong impact on the industry structure:

  1. They encourage the consolidation process of the industry in a search for economies of scale
  2. Mergers, acquisitions, and alliances allow the extension of technical competencies needed to address sophisticated turnkey contracts on a global basis.

Stronger position

However, consolidation generally strengthens the financial position of contractors and could lead or tempt some to accept the burden of front-end project investments as some oil companies seem to be requiring.

The risk is, therefore, that a contractor is selected on the basis of accepting financial risks rather than on the ability to manage technical or commercial risk. We must always keep in mind that enhanced business management and technology are two complementary ways to lower costs.

The offshore industry today experiences tremendous change and needs time for adaptation, as short-term constraints must not sign away long-term goals. The coming years will be crucial in establishing new ways of managing oil company-contractor relationships, technology transfer, and skills transfer. If done properly, they will certainly lead to improved oil industry performance in the long term.


João Carlos De Luca is the assistant to the vice president of Petrobras International. - (Braspetro). He has held positions within Petrobras as head of the Campos Basin formation evaluation division, manager of the production department, assistant to the commercial director, general manager of the planning service, the exploration and production directorate, and a member of Petrobras' board of directors. He holds a BS in civil engineering from the Federal University of Parana and a degree in petroleum engineering from Petrobras's engineering training center.
João Carlos De Luca


Over the last 35 years, the industry has seen the evolution in the use of subsea technology, from a single well in the Gulf of Mexico to close to 900 wells in several locations worldwide. Along with the growth in figures, we have all witnessed rapid advances in technology, ranging from a series of water depth records in Brazil to large, complex and long offset systems in the North Sea.

It is clear today, that deepwater field development is becoming more and more an economical rather than a technical challenge. When analyzing the cost breakdown of some of the Brazilian deepwater field developments, one can observe that 50% of the CAPEX is related to the number and the cost of wells (drilling, completion, flowlines, and subsea manifolds).

Technologies that help to decrease the number of wells needed (by increasing their productivity) must therefore contribute in a very significant way to reduce the ultimate cost per bbl of deepwater field developments. Based on that, the development of subsea boosting systems will play an important role, and for this reason they are considered essential to achieve the goals of PROCAP 2000 (Petrobras's technological innovation program for deepwater exploitation systems).

Subsea boosting

The attractiveness of subsea boosting systems has been confirmed in a recent screening study for the three giant deepwater fields, conducted by Petrobras. The main idea is to install these boosters close to the wellheads to transport the produced fluids to a floating production unit.

The study indicated encouraging economic results due to higher initial production rates, and therefore, early cash flow and a small increase in final oil recovery, which results in higher net present value (NPV) when compared with the conventional alternative. A reduction of 10-30% in costs per bbl was found to be typical. So, the oil industry saying that "boosting systems make good wells better" also has been corroborated.

The complete development of a subsea prototype, that is, the conceptual design, fabrication and field tests, is currently underway, for each of the technologies under development.

  1. Electrical submersible pumps (ESP): Artificial lift will certainly be required for subsea wells, especially for deep water reservoirs. Gas lift will not be able to cover a broad range of applications with long flowlines. Electrical submersible pumps in subsea wells seem to be most suitable for this task, although downhole gas separators still need to be improved significantly.

    The first subsea ESP prototype in the world is successfully running at Petrobras' Carapeba Field in 90-meter water depths since October, 1994. Six partners were involved in this pioneer work, and cooperation was a key factor for success. The same partners are involved on the next phase, which comprises the installation of an ESP in a well equipped with a guidelineless horizontal tree in 1,000-meter water depths in late 1996.

  2. Subsea separation system: This technology involves placement of a separation system on the seafloor to add energy to the produced liquid and send the gas by separation pressure. Petrobras has issued a tender for the construction of a subsea separation and boosting system named Petroboost, a gas-driven cyclic system, chosen to be the first prototype. The unit will be deployed at Marimba field in 1996.

    Petrobras is also participating with Mobil on a joint industry program led by Agip for the development of the VASPS concept which is based on a British Petroleum patent. The system consists of a cyclonic separation, followed by pumping the oil through an ESP placed on a dummy well. Petrobras intends to install a subsea prototype after successful confirmation of the pre-subsea phase currently underway

  3. Multiphase pumping systems: These systems are able to transport multiphase flow from a subsea well up to a host platform. Construction and operation of a land based site - Atalaia test site - for testing both performance and endurance of multiphase equipment is part of the strategy of PROCAP 2000.

Petrobras is currently conducting an endurance and performance test of a twin-screw multiphase pump, which has accumulated more than 4,000 hours operating time. Tests of multiphase meters are also planned for this loop prior to subsea installation on the Albacora Field manifold. Also, we currently are discussing a bilateral cooperation with equipment manufacturers in order to design, construct, and test a full subsea multiphase pumping unit to be tested on a Marlim Field well, located in water depths exceeding 750 meters. The installation will take place in 1997.

Power requirements

However, the power requirements for all the systems, especially for multiphase pumping, are as high as 2.5 MW. As a consequence, transmission and distribution of high power electricity for up to 25 km on the seabed, and using variable speed drive, presents a new technical barrier that needs to be tackled. A land test is scheduled for mid-1996 to verify in actual conditions the technical feasibility of such transmission.

Since most of Petrobras' reserves and future discoveries are located in deepwater, we do believe that we are betting on the right horses - all three technology systems. As mentioned before, we are confident that these new technologies will add value to deepwater development by reducing the cost per bbl by as much as 30%.


John E. d'Ancona was born in Malta in 1935 and moved to the UK in 1951. He holds a degree in modern history from Durham University. He joined the UK Civil Service in 1961, where he served in the Department of Education, the Department of Technology, the Department of Trade and Industry, and the Department of Energy. He took over the post of Director General of the Offshore Supplies Office (OSO) in 1981 and retired from that post and the Civil Service in June, 1994. He is a non-executive director with the Balmoral Group and is acting as a consultant for a number of companies.
John E. d'Ancona


Another year has passed. Another year of speculation about oil prices, production overhangs, and the (apparently) distant prospects of supply constraints. In the UK, the big issues have been decommissioning and the turbulence or domestic gas markets. What has 1996 in store?

I suspect that one feature of the year to come will be that Western Governments will continue to be very relaxed about future oil supplies. I would be lost in admiration for the sangfroid of the US administration as it watches US oil imports soar beyond 50% of domestic requirements if I didn't suspect that it was simply due to lack of perception.

Other governments and agencies are no better. So far as one can see only the European Union has even the dimmest appreciation that the present glut of oil may not last very much longer. The burgeoning economies of Southeast Asia and Latin America, where 60% of the world's population growth in the next 20 years is likely to occur, will place intolerable demands on the world's energy supplies in general and local sources in particular.

Oil, in common with all the primary fuels, will have to play its part in meeting demands, which will grow exponentially. Estimates vary, of course, but a mid-range forecast suggests that increases in global oil supplies, at least equal to OPEC's present production, will be needed by 2010. The reserves are undoubtedly there, but will the investment necessary be forthcoming, and from where?

Wherefore financing

The international oil industry doesn't have it. The governments concerned don't have it either. The banks are going to be predictably choosy about the likely returns on the projects which they support. The international aid and finance agencies are going to be overstretched.

Finally, will the environmental consequences of these huge new requirements for energy be tolerated by the hard-pressed populations of the countries in which the new levels of carbon emissions, nuclear developments, and large scale pollution of all sorts are likely to take place?

Will a balance between the natural desire for affluence and the consequent urbanization of the developing world and the environmental damage such developments cause be struck? Will the need for such a balance even be recognized? I hope that 1996 will at least see these questions beginning to be addressed. But I doubt it.

Sooner or later - and I believe sooner - the comforting tendency of oil prices to drop in real terms and the knowledge that ample additional supplies are there to be tapped will begin to dwindle. The populations of the west are not ready for a new bout of soaring energy prices and threats to security of supply. Their governments ought to start thinking about it.

Flavor of the year

Back in the UK, the new regimes for gas supply - onshore and offshore - will continue to make headlines. I don't have space to go into the subtleties - even if one accepted the unlikely thesis that I properly understood them - but I found my task of chairing the Oil Industry Advisory Committee on the use of Offshore Infrastructure one of the most intellectually challenging that I have ever faced. Whether the fruits of our labors, in the form of a voluntary code of conduct on third party use of such infrastructure, will ripen on the bough or not remains to be seen. 1996 will tell. But, gas will be the flavor of the year.


The other flavor should be decommissioning. The outcome of the Brent Spar debacle was catastrophic, frankly. This was not because Shell was humiliated. They - and we - can live with that. It was because the outcome was a triumph for bad science.

A way must be found to solve debates about the decommissioning methodology for individual structures which allows judgments to be made on their merits and not at the point of the gun of commercial blackmail. The individual consumer of oil products is simply not competent to make a valid judgment on the options available to the owner of structures ripe for decommissioning, and moreover, is too readily influenced by skillful media manipulation.

The romantic image of the environmental Davids bringing down the oil industry Goliaths may amuse and even excite. But, the oil industry is not a fairy tale and these difficult issues need both space and time be made properly. Some ideas on these matters are needed in 1996. I have some of my own. but this is not an advertisement.

Finally, I ended last year's forecast with the hope and expectation that the Iraqi government's remarkable ability to get things wrong would relieve the oil market from having to cope immediately with a significant inrush of Iraqi oil. I nervously predict t that for 1996, we can continue to rely on Saddam Hussein.


John A. Mercier is the principal in Houston-based Offshore Innovations and a consultant. He retired from Conoco in 1994 and was involved in the development of deepwater production systems, especially tension-leg platforms, for over 20 years. He led Conoco's team in the development of the Hutton TLP and subsequently advised on other TLP projects, and supervised marine technology and engineering groups. He also managed an R & D group for Conoco Limited.
John A. Mercier
Offshore Innovations


The past year has produced considerable evidence that contractors and operating companies are increasingly confident and hopeful about prospects for development of deepwater hydrocarbons.

The large attendance at OTC sessions addressing floating production systems, progress with actual projects in the US Gulf of Mexico and West of Shetlands, exploration activities and plans for West Africa, Brazil, the Norwegian Sea, and offshore Mexico, as well as an abundance of articles in this and other industry magazines support this perception.

It is especially interesting that this increased appreciation for deepwater and floating production systems is being expressed, while oil price forecasts remain flat.

Confidence is being shown both in the likelihood that substantial discoveries will be made in deepwater and that techniques for economically producing the reserves are available. The high well productivity which Shell found when the Auger field started producing reinforces expectations that discoveries can be profitable.

Increasing numbers of contractors, as well as E & P companies, have come to know and embrace the technologies needed for development. These contractors are bringing forward innovative cost-saving concepts. Fast schedules are once again being pressed.

Partial royalty relief for the deep water Gulf of Mexico should move some moderate-sized discoveries from marginal economic prospects to go-ahead projects. Coupled with confidence in the capability of deepwater development techniques, this should enable more exploration, not just to find elephants.

Most of the specialized equipment needed for deep water development is available from a competitive market place. One exception is for very deepwater drilling rigs, where the relatively small number of available units may not match near-term demand, and ways to upgrade less capable rigs are being developed.

The competitive marketplace for floating production systems, especially the large numbers of bidders for some North Sea turnkey projects, demonstrates the hopefulness of new players in the industry. Is it likely that demand for such systems, even if optimistic scenarios for deepwater developments prove accurate, will justify their efforts?

For oil companies, with recently reduced engineering staffs and retained strong preferences for field proven equipment and proven track records, this new set of bidders, some having new techniques and some with new commercial arrangements, affords a fine opportunity to test the efficacy of new business procedures and practices.

New techniques

Making progress with cost reductions in deep water is being accomplished through competition, both commercially and in ideas. The increased confidence and know-how on the part of designers and managers facilitates commercial competition. The very nature of the offshore business enables competition in creative concepts. For all the expressed preference for off-the-shelf designs, offshore business has a remarkable record for innovation.

Some of this has been driven by necessity and some started with a clever invention. Some new developments are large-scale, complete systems, while more are incremental or step-outs. Practically all derive from some prior experience.

The Spar production system idea, which will be installed next year for Oryx by Rauma Offshore and McDermott, was conceptualized by Deep Oil Technology company's Ed Horton, who had earlier promoted the tension leg platform (TLP). This concept actually employs important extensions of the TLP well systems.

Other extensions of the TLP concept are being offered by a number of developers, calling their minimum facilities platforms by such names as Minifloater, SeaStar, Moses, and Surface Completion Floaters.

Turret-moored tanker-based systems are being proven for increasingly deep waters. Important developments in mooring systems are needed for deeper waters and can be expected. Converting semisubmersibles for deep water will have to compete with use of these systems in their originally intended mission. Recent trends remind us that the number of vessels available for conversion changes with drilling contract demand.

Another example of lateral thinking is the very large simple barge, which Brown & Boot calls a Barbox. The Barbox can provide the functions of production, storage and offtake, like a tanker, in a newbuild vessel without a turret and swivel (but with a more robust spread mooring system).

Subsea and well systems are also being advanced in ways that will be important for deep water development. Subsea multiphase booster pumps are being tested in a number of real and demonstration applications. Seabed separation systems and multiphase metering systems are also being advanced by several developers. Control of paraffin and hydrate depositions in flowlines is the subject of intense development with good prospects for success. Of course, drilling and completion techniques such as horizontal and multi-lateral wells are likely to have prominent places in the deep offshore.

Do we have enough good ideas? Too many? While we can't try all possible methods, using each in a real project to fully test their actual merits, we would do well to remain open to new ideas.

Project requirements and project champions will sort the concepts that are most likely to be advantageous and enable the competitive market to find the preferred solutions. Not all projects (and not all companies) are alike, so it is reasonable to expect diverse solutions for deep water offshore developments, which will benefit from applying combinations of the available techniques tailored to specific project requirements.

Importance of deepwater

The mood is upbeat. But are deep water prospects really important enough to justify the attention they are being accorded? As an enthusiast, I certainly hope so. As usual, supply, demand, and oil/gas price forecasts will regulate the pace of developments. Current forecasts project a practically status quo supply/demand/price situation.

Since many deepwater developments are relatively high-cost, in terms of both absolute project investment and dollars per bbl, such developments may be vulnerable in case forecasts turn more pessimistic. But forecasts are uncertain and imperfect, and if expectations become more buoyant, the capability to bring on deepwater production may be highly advantageous. Development contractors, including the new players, are showing a capability to move quickly, which is important for the truly confident developers.


Joseph H. Netherland, Jr. is vice president of FMC Corporation's Energy and Transportation Equipment Group. He has held positions as manager of the planning department, operations manager for FMC's Ordnance Division, manager of the Petroleum Equipment Group's Fluid Control Division, manager of the Wellhead Division, general manager of the Petroleum Equipment Group and Specialized Machinery Group. He was previous with E. I. DuPont de Nemours & Co. He holds a BS in industrial engineering from Georgia Institute of Technology and an MBA from the University of Pennsylvania's Wharton School of Finance.

Joseph H. Netherland, Jr.
FMC Corporation


Forecasting in the oil industry can be a dangerous practice. In an industry so impacted by geopolitical events, change is always around the corner. As businesses, our successes and failures are largely dependent on our ability no excel in a changing environment. There are often key events or trends which drive this change.

Thus, instead of providing the traditional supply and demand or price forecasts, it is perhaps better to take a look at some of these key events and trends which are occurring in the petroleum markets and examine their impact on the service and supply industry around the world.

Technology impact

In the United States, a number of factors are working to prevent a precipitous decline in US production. Technology is having a far greater positive impact upon US production levels than we ever anticipated, especially at current prices.

With new technologies, the industry is working to extend the life of the Prudhoe Bay Field. Deepwater and subsea technologies have pushed the frontier in the Gulf of Mexico deeper and deeper. For the service and supply industry, our research that aids in maintaining production levels in existing fields and economically developing newer areas is having a positive impact.

Politics may also begin to play a stronger role in the US in 1996. Congress is favorably considering such actions as opening of the Coastal Plain of the Arctic National Wildlife Refuge. Deepwater royalty relief for the Gulf of Mexico is also under consideration. While several of these measures face an uncertain future in final negotiations or on the President's desk, public policy factors in the US are positive for a change.

Should these measures pass, deepwater Gulf of Mexico should be more economical to develop, and for the first time in years, an area of high hydrocarbon potential in the US will be opened. Internationally, there are a number of positive factors play:

Russian stabilization

In Russia, the steep decline of production which has occurred since 1987 has slowed dramatically, almost to a stop. Lukoil, the large integrated Russian company has made significant strides in managing its vast resources. The joint ventures with such companies such as Royal Dutch/Shell and Conoco are picking up speed, but still await stabilization that can come from production sharing agreements and clarity on current and future tax issues. Once successful ventures take hold in Russia, success will breed success as the vast geological resources begin to overwhelm the downside political risk.

National oil cooperation

Also internationally, OPEC, combined with several of the large state-owned oil companies such as Petrobras, Statoil and PDVSA with their large share of reserves should be spending a significant portion of the industry capital through the end of the century.

Large increases in production are predicted for Brazil (20% to 30%), Venezuela (15% to 20%), and the Gulf OPEC countries (25% to 33%). In an environment where the service and supply industry has worked closely with the large multinationals in alliances to lower their costs and speed time to production, we must now turn to the large state-owned companies and convince them that they too would benefit from more cooperative arrangements.

Thus, as we look to 1996, there are some positive factors in play, both in the US and abroad. There are some unknowns as well - potential succession questions in Saudi Arabia, the rate of change in Russia, and Saddam Hussein's behavior, to name a few. As always, the challenge for the service and supply industry will be to benefit from the upside as we manage our risks intelligently (or at least the best we can).

Copyright 1995 Offshore. All Rights Reserved.

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