From the Editor

First quarter drilling figures from the UK show a 41% decrease from first quarter 2008 and an 18% decrease from the 4th quarter 2008 according to a recent report by Deloitte. The report notes that the decline can be solely attributed to a dramatic tail off in exploration drilling which is down 78% over numbers for the same period last year. The number of appraisal wells, on the other hand, matches exactly the number for the previous year. Total wells spudded in the UK sector in the first quarter of 2009 was 18. Nearly half were in the Central North Sea while only 11% were in the Northern North Sea. Of the balance, 28% were in the Southern North Sea and 17% in the Moray Firth. This activity mirrors a general trend worldwide, a trend that we have seen in every downturn. Exploration drops while operators use their tightened funds to drill existing acreage, often to meet lease terms and hold the acreage until better times return.

However this downturn is unlike the others the industry has experienced. It occurs in concert with a general, global economic melt down. While strong economies drove the rapid recovery of the industry in earlier downturns, that scenario is not likely now. The industry will recover slowly with the recovering global economy. What this means is that, if the downturn continues for a while longer, there will be a dearth of new prospects as we come out of the downturn, further slowing recovery. While this is not a pleasant point to consider we must bear it in mind as we position the industry to recover.

I got involved in a conversation with a couple of old friends the other day about the weirdest well we each had drilled. I skipped the one with 5 sidetracks, the one in which we cemented up the rig floor, the one where we fished for five days and finally recovered collars and the BHA only to catch hell from my boss who had written off the equipment and filed a claim with the insurance company, and several more.

The one I settled on was a well I drilled on the grounds of the Golden Meadow Power Plant south of Baton Rouge, Louisiana. It was memorable for two reasons. First was a formation we drilled in the top hole section. Second was the Sergeant of the Levee Board who made my life miserable.

About the well. The location was on the banks of the Mississippi River. The land around the river, for hundreds of mile on either side is protected from flooding by a series of levees at the river’s banks. The integrity of the levees is crucial to life and property around the river. Thus, the Levee Board has almost dictatorial power. The well we drilled was within the jurisdiction of the Levee Board.

About the Mississippi River. Before the levees fenced it in, the mighty Mississippi’s path wandered considerably and shifted course continually. Thus, what might have been forest a few hundred years ago, might today be river bottom, and vice versa.

We spudded the well on a fine spring day and drilled the first 150 feet easily.  At 151 feet, we lost circulation as we drilled into a layer of gravel from the river’s previously wanderings. Regaining circulation in that 20 foot section was no easy feat. The mud was so thick you could walk a 90 pound dog across it but it got the job done. However, after drilling another 20 or so feet through Louisiana gumbo (a particularly sticky clay), we began to lose circulation again. I was standing at the shakers when the first returns came over from this second, troubling formation. What I saw was chunks of wood, perfectly preserved. We had drilled into the remains of a cypress forest. For those of you unfamiliar with cypress, it grows in wetland areas and is largely impervious to rot and decay. All told, we drilled nearly 100 feet of wood.

The Sergeant of the Levee Board made the well more curious. He let me know immediately that the Levee  Board would appreciate the donation of any casing we had left over, ostensibly to use for drainage. He also let me know he could shut down our operation with a citation that we were damaging the levee. He got the casing. There were a number of other things the Levee Board could use, things like hand tools, propane tanks and such. He got them. The day we laid down the derrick, he came round again to thank us for being such good citizens. In fact, he said, he had won several local contests for his jambalaya recipe and he wanted to back later and cook a batch for us as thanks. He did. It was good. The bill he handed me was for $165. Apparently the Levy Board was low on funds also.

When you read this headline, I am guessing you said “really?” or “Pike’s been smoking those left-handed cigarettes again.” But that is not the case.  Ask Denbury CEO Gareth Roberts. He might show you an illustration of a volcano that erupted on the U.S. Gulf Coast some 65 million years ago and deposited lava around current-day Jackson, Mississippi. Denbury owns part of that mass of lava. Why, you ask. Because Denbury has made its mark in CO2 EOR and the lava, over 15,000 feet below the surface, is the source of the CO2 for the floods that have turned Denbury into the leading tertiary-recovery oil company in the Southern U.S. The extinct volcano, by the way, is the largest single source of CO2 in the Eastern U.S.

However, Denbury needs increasing amounts of CO2 in locations other than Mississippi and the company is working its way through other sources for the gas, primarily from refinery waste gas, in order to redevelop fields on the Texas Gulf Coast.

Denbury’s need for CO2 to support EOR is not unique. In West Texas, where CO2 flooding has been occurring for more than 37 years, operators are experiencing a short fall of about half a billion cubic feet per day. During the 37 years, operators have safely transported over 600 million metric tons of CO2 and have safely injected over 1,200 million tons (22 trillion standard feet), according to Ian Duncan of the Bureau of Economic Geology, University of Texas at Austin, in a report to the U.S. Congress. The industry operates over 13,000 CO2 injection wells, 3,500 miles of high-pressure CO2 pipelines, and produces about 245,000 bopd with CO2 flooding.

Interesting, isn’t it, that in a era where sequestration of carbon is THE topic and schemes to sequester it are climbing out of the walls, there is one industry that can’t get enough of the stuff. Our message to the rest of the world - bring it on. And that is exactly the message CO2 EOR gurus are sending to national, state and local governments.

I have a Blackberry. I love the connectivity it gives me when I am away on business. All in all it, and other e-mail and web enabled portable devices, are among the finest technologies developed in the last 20 years.

There is only one problem with these devices - the users. It almost never fails these days. In the middle of a conversation or meeting some one’s trousers or purse jingle and, irrespective of the gravity of the conversation, that person reaches for the device to check the message. Often the message is taken “under the table” in an attempt to make fellow communicants believe that the individual is still following the conversation. It seldom works. Other times, the message recipient is bold, whipping the device out openly in glorious declaration that whatever you might be saying bears no weight compared to what might pop up on the miniature screen. These actions are rude, disruptive and counterproductive.

We managed to run the industry and the world for decades without instaneous connectivity. To be sure, we could do that again, although most of us would not want to. But we don’t have to be slaves to these devices.

So, if your Blackberry/I-Phone/etc. should ring while you are talking to me, please resist the urge to answer the call or check the message unless there is a crisis in progress and the message/call is critical. I guarantee you will get a scowl from me.

After a number of years of prosperity, and significant builds in its current account, based to a large extent on oil and gas export monies, Russia is hurting.  While still the world’s largest producer of oil, Russian production is faltering. In February production fell to 9.72 million barrels per day. But exports totaled a healthy 5.37 million barrels per day. The implication is clear. Russia needs the export dollars.

But the dangers may not be as clear, according to Pritchard Capital Partners. If Russia continues to export an increasing percentage of its production it may be adding extra barrels to the export market that might partly cancel the impact of OPEC export cuts, thereby sustaining low oil prices or perhaps driving oil prices down further.

Russia will attend the March 15th OPEC meeting as a  non-member. It is not clear what agenda the Russians may have with regard to the meeting. They will join a group divided over further cuts. In part that is because not all OPEC members have completed their promised cuts and , in part, because non-OPEC producers have made no efforts to cut supply. Algeria and Kuwait appear to support a further cut in supply while Saudi Arabia wants the organization to comply with the current output ceiling and, thus, opposes further cuts. Whether either of these arguments will sway the Russians remains to be seen. Looked at practically, one would assume that the Russians will not be swayed because the fall in the price of oil has had a severe impact on the Russian economy and curtailing exports would compound the problem.

If you have ever flown into Midland, Texas or Almetyevsk in Tartarstan in Russia, or into any other mature oil and gas province, you might have glanced down and noticed the elaborate network of roads that connect producing and abandoned wells, tank batteries and drilling sites. To say that we have scarred the land with roads in mature areas is an understatement. How much land area do oilfield roads cover globally? Let’s make a guesstimate. If we assume 2,000,000 million land sites in the world (there are more than 500,000 in the U.S. alone), each with a road to it measuring one mile long and 15 feet wide, then worldwide oilfield roads cover 250,000 square miles or an area equal to about half the U.S.  The distance of the average road is probably overestimated but you can see the magnitude of the problem. Some of these roads, like the board roads in swampy Louisiana or the simple dirt roads in the Black Warrior Basin will erode over time, allowing the track to revert to its natural state. However, a large number of these roads, like the caliche roads of West Texas, erode very slowly and represent an environmental scar for decades if not centuries.

That’s why I particularly like the Disappearing Roads project now underway in West Texas. The program, a joint industry project overseen by the GPRI Department of Petroleum Engineering at Texas A&M University and funded, in part, by the Research Partnership to Secure Energy for America (RPSEA) has secured an unused tire test track outside Pecos, Texas. On this site, they plan to construct roads out of degradable material and monitor their degradation. The intent is to come up with a road that disappears in certain amount of time.

The project is one of many funded RPSEA with some matching funds from industry. By our industry’s standards, the funding is not large but the projects could have a large impact on future operations. These are the kinds of projects the industry needs.

I was googling the other day in an honest search for information when I stumbled upon a gem. The title of the page was “How to Get a Job as an Oilfield Equipment Salesman.” The first sentence read “when it comes to sales jobs one of the highest commissioned jobs is that of an oilfield equipment salesman.” The site followed with explanations and instructions on getting that high paying job in the patch.

About the career: “A drilling rig can cost several million dollars and a good salesman could easily make a year’s salary in one sale.” All of you out there who have had this experience - who have sold a drilling rig this year and made a year’s salary in one sale - please stand up.

The site continues: “It does help if a person has a good amount of mechanical knowledge (no kidding) as well as sales experience. Oilfield buyers are tough customers and will ask tough questions, especially to trip up an inexperienced salesman who does not know what he is talking about.” Having bought my share of bits, tubulars, bentonite, etc., I can vouch for that.

Further: “In addition to reading as much as you can about all aspects of the oil and gas industry (a multi-year task) you may want to actually spend some time in the field learning about the products you will be selling as they are really used.”

And: “If you are going to be selling oilfield drill bits for example, try and visit a few rigs and see how they are applied . . . ” You can bet I always had room on my rigs for trainee bit salesmen.

Finally: In doing so you can be more prepared for a tough sell to a crusty old oilfield company man or toolpusher.” Your hope here, I assume, is that the crusty old man will laugh himself into incoherence and actually buy something from you.

I don’t know where they find these web gurus but my assumption is that a train full of circus clowns derailed in front of some one’s office.

In uncertain times such as these it is often fun to recount a recently encountered joke. Here’s one I came across today.

“it is going to be pretty tough when this country gets back to normal and the fellows who write thos articles on economics have got to know what they are talking about again.”

Here is another: “Sign seen on an oil country machine shop: ‘We make everything here except a living.’”

No modern jokes these. The first is from the November 1938 issue of Petroleum Engineer (our predecessor) and the second from the February 2009 issue of the same magazine.

While there might be a cyclical pattern in the economic performance of the industry and its products, not so for technology.  In the same run of Petroleum Engineer really deep wells are approaching 10,000 ft, rotary rigs are supplanting cable tool rigs, fracturing has yet to be invented and the first article that we are aware is published on building an offshore drilling platform - for operations one mile offshore.

While we have not been able to control economic cycles, the steady progress of technology and innovation has continued to carry the day for us. No doubt that will continue.

Most of the U.S. (and I suspect a good number outside the U.S.) paused yesterday at some point to gaze at the spectacle that is  the inauguration of an American president. To many, it held a great deal of promise. Just as important,as based on great promises. In this, Obama is not unlike any other American president. The penchant to over promise appears to be a prerequisite to run for political office in the U.S.

While President Obama’s promises on energy are notable, they are wholly unrealistic. Whilst he may begin the programs that will eventually wean the nation from dependence on fossil fuels, he will be of advanced age, and long out of office, before any such programs come to full fruition. Unfortunately, both he and his fellow politicians - Democratic and Republican - have left the American populace with the belief that a solution to the nation’s dependence of fossil fuel will be swift and sure. In this respect, at least, there are going to be great numbers of disappointed citizens. But, then again, it is the citizenry at large that choses to divorce itself from reality and embrace the illogical.

You might think, like me, that the primary focus of the U.S. Department of Energy (DOE) is, well, energy. Like me, you would be wrong. Scanning the DOE’s proposed (brought forward under the  Bush administration,  not yet approved and likely to be altered substantially under the Obama administration) budget for 2009 brings some interesting things to light. The largest single line item in the $25.014 billion budget proposal is $6.618 billion for oversight and management of the U.S. nuclear weapons stockpile. Add in other defense-related nuclear programs and the total jumps to $9.097 billion. The U.S. may not be the powerhouse it once was but DOE is the most well armed governmental department in the world.

Surely then, the second largest expenditure is on energy. Well, not really. The second largest DOE item in the proposed 2009 budget is $6.209 billion, primarily for environmental management and civilian radioactive waste management.

Well, energy has got to be the third largest item in the budget. Nope, that would be a nebulous line item for “science” totaling $4.722 billion.

Jimmy Cricket, where does energy fall? Fourth, at $3.936 billion. That money breaks out as follows: $1.255 for energy efficiency and renewable energy (down 27.1% from the 2008 budget); $134 million for electricity delivery and energy reliability (off 3.3% from 2008); $1.127 billion for fossil fuel (up 24.6% from 2008); and $1.419 for nuclear energy (up 37.3% over 2008). The balance of the budget(slightly more that $1 billion) is management.

If you think a U.S. Federal department charged with energy oversight and development that budgets just less than 16% for energy is lame, I agree. If you think spending 36% of that same department’s budget overseeing a nuclear weapons stockpile is lame, I agree again. If you think, under the U.S. governmental system, that this budget is an aberration, you are wrong.

The only sure thing about the proposed DOE budget is that it won’t pass Congress in its current form. That doesn’t mean there will be less spent on storing nuclear warheads or on environment issues. No, under the Obama administration, it means that the budget will grow, with greater funding for energy in general and renewable energy specifically. That is not a bad thing.