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Another Confirmation of Oil Depletion

Ronald R. Cooke
The Cultural Economist
www.tce.name
January 30, 2009

Of all the very large companies in the oil business, one has to particularly admire the business strategy of Schlumberger. This company is the world’sleading supplier of technology, integrated project management and information solutions to customers working in the oil and gas industry. Employing more than 87,000 people in approximately 80 countries, Schlumberger attempts to work with the national governments that actually own the world’s oil resources on a cooperative basis. This non-competitive, cooperative, strategy brought Schlumberger revenues of $27.16 billion in 2008.

Because of its stature, I listen when this company comments on industry trends. In the following excerpt from a January 23, 2009 press release, Schlumberger Chairman and CEO Andrew Gould talks about the availability and price of oil. I highlighted the key points in italics:

“….. The sharp drop in oil and gas prices due to lower demand, higher inventories and the belief that demand will erode further in 2009 as a result of reduced economic activity, is leading to rapid and substantial reductions in exploration and production expenditure. At current prices most of the new categories of hydrocarbon resources are not economic to develop. It will take time for inflation to be removed from the system and to bring finding and development costs more in line with lower oil and gas prices.

We expect 2009 activity to weaken across the board with the most significant declines occurring in North American gas drilling, Russian oil production enhancement and in mature offshore basins. Exploration offshore will be somewhat curtailed but commitments already planned are likely to be honored. Seismic expenditures particularly for multiclient data are likely to decrease from last year. …

The key indicator of a future recovery in oilfield services activity will be a stabilization and recovery in the demand for oil. The recent years of increased exploration and production spending have not been sufficient to substantially improve the supply situation. The age of the production base, accelerating decline rates and the smaller size of recently developed fields will mean that any prolonged reduction in investment will sow the seeds of a strong rebound (in exploration activity). ….”

For those of us who have been concerned about oil depletion, this statement provides yet another confirmation of our analysis and conclusions. If, and when, the world economy recovers, oil supplies will again be tight, leading to another round of upward price volatility.

Ronald R. Cooke
January 30, 2009
The Cultural Economist

About The Cultural Economist - Ron graduated with an A.B. in Economics from Bates College. He has been an auditor, line manager, computer salesman, marketing manager, product planning manager, and V. P. of Marketing. A management consultant by inclination, Ron has a comprehensive background in business development, product planning, market research, and industry analysis. He has authored multiple market research reports, contracts, business plans and operations research studies for corporate clients in 12 countries. Prior experience includes technology assessment, the evaluation of corporate financial performance, and the negotiation of corporate acquisitions.
Ron is a former instructor with UCSC, and developed the curriculum for a science based approach to decision analysis. He has pursued the study of Cultural Economics since 1969, and has authored "Oil, Jihad and Destiny," [Amazon,] a thought-provoking research report on oil depletion (Opportunity Analysis - 2004, and revised in 2007), and "Detensive Nation," a book that redefines the role of government in an Energy Detensive EcoSystem (The Cultural Economist - 2007).