From Bureau of Economic Geology, The University of Texas at Austin (www.beg.utexas.edu).
For more information, please contact the author.

 

AAPG/SEPM Annual Convention, Denver, Colorado, June 3–6, 2001

The Value of Upstream Technology and the Future of Energy Research

Scott W. Tinker

ABSTRACT

In the oil industry, the word technology has been used to describe everything from outcrop studies to offshore platform construction. The word is so over-used that it has come to mean very little.

In this talk, long-term value will be differentiated from short-term, quarterly profit. The descriptive, interpretive, often research-oriented upstream-upstream world of geologists, geophysicists, and petrophysicists will be contrasted to the quantified, blueprint, application-oriented downstream-upstream world of engineers. The value of upstream technology will be examined in the context of the upstream-upstream to downstream-upstream iterative workflow.

It is easier to quantify, and therefore easier to assign quarterly profit to the downstream-upstream. In contrast, value addition from the upstream-upstream is more difficult to quantify and does not lend itself to quarterly profit evaluation. I call this the Value Trap. Many oil companies have recently fallen into the value trap, and eliminated those aspects of the business that do not show quarterly profit. The wisdom and impact of this decision will be examined.

To examine the contribution and value of upstream technology, the components of the 50-year U.S. natural gas production curve and the 30-year Texas oil production curve will be dissected based upon investment in technology and research, and subsequent incremental oil and gas returns. In each case, the analysis shows that the value of upstream technology far exceeds the actual cost.

In order to thrive in the future, decisions must be made to balance quarterly profit with long-term value addition. A proposal for funding energy research will be proposed that puts control in the hands of the industry, will help to divert a government mandate, and help attract students into the field of earth sciences.

1Bureau of Economic Geology, The University of Texas at Austin, University Station Box X, Austin, Texas 78713; e-mail: scott.tinker@beg.utexas.edu.