Former University of Tulsa professor Parke Dickey understood today’s oil and natural gas industry as well as he did when he studied that industry more than half a century ago.
In 1958, Dickey famously defined how the industry finds oil.
“We usually find oil in new places with old ideas,” he said. “Sometimes we find oil in old places with a new idea, but we seldom find much oil in an old place with an old idea. Several times in the past we have thought we were running out of oil when actually we were running out of ideas.”
Dickey’s explanation has been supported by the rapid growth over the past decade as horizontal drilling and hydraulic fracturing, or fracking, have reignited the industry and reversed four decades of declining domestic production.
The technology combined with strong commodity prices has allowed companies to recover large amounts of oil and natural gas from both new areas and from some of the longest-producing fields in the country.
My desk is covered in various books about the oil and natural gas industry written over the past decade. The titles show how much the industry has changed in such a short time.
From “The End of Oil” and “Beyond Oil” to “The Bottomless Well” and “The Frackers,” the industry has evolved in many ways in terms of its outlook and expectations.
Concern is overstated
Despite the changes, people still asked regularly about how much oil is really out there and why prices are still high even after all the new production.
The answers to the two questions are related.
In 1980, the world’s known oil reserves were about 700 billion barrels. Over the next 35 years, the global industry has produced more than 850 billion barrels, and worldwide proved reserves are double where they started.
“The moral of the story is that price and technology matter,” Foster Mellen, senior strategic analyst at Earnst and Young in New York, said at a conference last month at Oklahoma City University’s Meinders School of Business.
“This is not to paint a picture that oil reserves are unlimited, but at any point in time, we really don’t have a good handle on how much is there. That’s not to say the industry isn’t concerned about it, but the concern that we’re running out is certainly overstated.”
Technology has improved, but that technology is expensive. Companies now spend as much as $8 million for a typical horizontal well. Before drilling, the companies use three-dimensional seismic monitoring to understand the rocks deep below ground and identify exactly where to drill.
So how much oil is still out there? Enough to last a long time, but only if prices stay up.