By: Craig Beasley, President-Elect
Maybe I should not tempt fate with my upbeat title “Welcome 2019”, but I am throwing caution to the wind and speculating that it can’t get much worse than the last 3-4 years. Like everyone else, I suppose, I am wondering what will be in store for us in the coming year. Some things are certain – death and taxes for example, just not certain who and how much. I expect to take the reins of the GSH from Dennis in the not-too-distant future, and there are few other things that seem certain. The near-term future of our science, profession, and businesses seem not so certain.
From my experience with industry downturns, of which I feel I have too much, by all rights, we should be on a solid, stable path of recovery at this point in the business cycle. Just a few months ago, that seemed to be the case. Oil prices seemed to be on a long-term increasing trend, due to restricted industry investment coupled with steadily increasing demand. However, now we find uncertain and volatile markets again. Here is a sample of headlines appearing on my phone at this moment as I write:
“Crude oil prices rally as Saudi Arabia eyes more drastic measures” – Investors Business Daily, 2 hours ago, and
“Goldman Sachs slashes 2019 oil price forecast amid oversupply concerns” – CNBC.com, 5 hours ago.
So what are we to make of this? Actually, both can and probably will be true.
In a way, downturns are all the same. Market forces of supply and demand eventually take effect, often overshooting, and we eventually return to a stable, perhaps expanding, business environment. But they are always different. This time, the differences are obvious, but it is difficult to predict the outcome and timing of the effects of these new features. The biggest new element, and perhaps the one most responsible for our current situation, is the growing role of shales, particularly in the US. A lot of new production came in during the previous period of higher prices – ah, remember that? Conventional wisdom held that there was a cost factor for shales that would be a factor as prices fell, making much of that production uneconomical. That was true to some extent, but as always, the pundits underestimated the ability of the oil business to respond to such challenges. And of course, we did, dramatically reducing the cost of producing shales.
Other forces can be sited – the great crew change, the rise of electric vehicles, environmental and political situations etc. have all played some sort of role in the state of the current market, but none carry the weight of the shale revolution. There are at least 3 lessons we can take from this situation, assuming my analysis has some credibility:
1.) Don’t expect or rely on the traditional geophysics business to come roaring back as it has in the past. For example, there will certainly continue to be an offshore/deep water market for our trade, but such investments will surely be diminished in the near term, in favor of less capitally intensive investments and those with shorter payback, such as some shale plays offer.
2.) If you believe the first one, orient yourselves and your business interests to address the needs in the shales. From my limited perspective, there is a lot of information we can add to the shale production process, but we need to supply it in a timely manner. It reminds me of the early days of 3D seismic. There was so much information we could provide with a 3D seismic survey, but we had to reduce the 2-year(+) timeframe for providing it. We face similar challenges in the shales, and I am certain we can make similar strides in our turnaround times. If we don’t, we will be out of that game.
3.) The 3rd lesson is to invest in shales (this is safe because I didn’t say when). It may be a little late for that, but more to the point, go back and read 1.) and 2.) again.
I would be remiss if I did not stress the significant help you can find in these turbulent times from your professional societies. We are fortunate, those of us who live in Houston, to have one of the premier geophysical organizations (local, national or international!) located right here in Houston. Membership is a bargain, as most of the services provided are free or are charged at cost. Response has been very good, considering the downturn we are in, but it could be better. We have lost many members and are working hard to encourage everyone to stay with us and take advantage of training, networking, technical meetings and all the things that make up the GSH. It will be well worth it.