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BP Chief: E&Ps Challenged to Find New Reserves, Workers

October 20, 2008
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Exploration and production (E&P) companies' ability to find new oil and natural gas resources has peaked "at least in the short term" because new reserves are in ever-more challenging environments, and the industry is losing a generation of experienced workers, BP plc's E&P chief said in speech at Rice University in Houston.

In a speech addressing human resource challenges, BP's Andy Inglis said, "I think it's true to say that we may have reached a period of peak capability..." The baby boomers are beginning to retire, "but this shift is only part of a far bigger challenge which we are experiencing: plugging the 'capability gap.' I believe that capability, another word for what some call 'intellectual capital,' should be a major strategic priority for all boards; and I would like to argue today that it is a challenge we can manage, indeed it is a challenge we are beginning to manage already."

In the E&P industry, "strategic challenges come and go and we usually conquer them in the end, for that is what we do. We manage risks, whether they be technical, geological, commercial or political. And today, near the top of that list is capability. The really big strategic issue for all oil and gas companies is matching the earth's resource endowment on the one hand, with the capability -- technology, skills and know-how -- required to bring those resources to market on the other."

"Peak capability," he said, "bears a far closer relation to the facts than so-called 'peak oil.' The days of 'easy oil' are well behind us. For international oil companies (IOC), and increasingly national oil companies (NOC) too, new resources are harder to reach and tougher to produce. Resources are now found in reservoirs which lie at greater water depths, at higher temperatures and pressures and require complex drilling and completion designs. Bringing them into production is going to be difficult. It will require that capability gap to be filled."

Inglis noted that the International Energy Administration estimates that by 2030, world energy demand will be 50% greater than it is today. However, "contrary to what you may hear from some quarters, there are more than enough resources to meet that demand." At today's consumption rates, "we believe we have around 40 years of proven oil reserves, 60 years of natural gas, and 130 years of coal.

"And let us not forget that enhanced capability would improve that resource-to-production ratio further. For instance, the worldwide average recovery factor for conventional oil reservoirs is around 35% of oil in place. If, as an industry, we can raise that by just 5%, it would add around 170 billion barrels to world reserves, enough for five years supply."

The task facing the energy industry, said Inglis, is to ensure that supply rises adequately to meet demand by bringing this oil and gas endowment to market. "These resources are found in increasingly challenging environments: in the deserts of the Middle East and North Africa; in the deepest waters of the Gulf of Mexico, West Africa and Brazil; and in the Alaskan and Russian Arctic. Furthermore, many of these resources are controlled by NOCs which do not always have the same capability at their disposal as IOCs."

The energy industry "needs the smartest engineers and geoscientists," said Inglis. "Increased computing power and better technology will also make a huge contribution...and they mitigate the issue...but they are not a magic bullet. State-of-the-art software programs and sea-bed monitors are fantastic, but I'm not expecting them to walk into my office with a solution to the problem. Technology is only as good as the people who design and operate it. With capability, it is people who make the difference."

Turning resources into reserves and then into production "is going to require leadership, ingenuity and innovation as well as technology," said the BP chief. "That is the capability challenge."

Inglis cited a recent study that found that only 65% of the college students who originally aspire to work in the energy sector actually do so. "A large proportion of the leakage was into the investment banking sector, and I encounter them at investor road shows," he said. "Well, that was true up until a couple of weeks ago. Maybe some will now be reflecting on their choice!"

BP has undertaken university partnerships, including one with Rice, to attract more students to the oil and gas field.

"BP is not alone," Inglis said. "Capability and managing talent have to be at the core of strategy for every company in our industry right now, and at the front of the deliberations for all boards. Sure, the guard is changing and that creates a major challenge for us. But it has to be seen as part of a far bigger picture...There is always more to do, but we know that building organizational capability goes right to the heart of our competitive advantage."

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