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Changes in oil patch color market for consultants Oil and gas consulting is here to stay, and it’s not just for old timers or downsized engineers anymore Steve Sutherlin PNA Contributing Writer
The golden age of the oil and gas consultant is over — or just beginning — depending on who you talk to.
Downsizing and outsourcing has created a new set of opportunities for consultants. But the maturation of the Alaska oil industry has dried up demand for wildcat consultants, the independent geologists whose reports were influential in opening the state’s oilfields back in the early days when little was known about what lay beneath the surface.
“The climate of the oil and gas industry is much different than it was 15 years ago,” said pioneering consultant Arlen Ehm. “Areas in upcoming state and federal sales have been up for lease at least once before.”
Not only do oil companies know more about the geology of the state, they are protective of the data they have that might give them a competitive edge, according to Ehm.
“At the majors, almost all work is done in house,” Ehm said. “There is a perception that proprietary company ideas could be vulnerable to theft by the consultant, although we are prohibited our own ethics and by the codes of organizations we belong to from doing that.”
Ehm said the majors use consultants for engineering and operational work, but not generally for geological work.
Fewer clients due to consolidation In the past, a variety of players depended more on independent consultants, but consolidation in the oil patch has pared the list of potential clients to just a few names.
“In the late ‘70s and early ‘80s I couldn’t do all the work that was offered but in ‘86 and ’87, I had only two days work in one and a half years,” Ehm said.
In 1984, 32 companies were active potential clients, but now they’ve moved or merged, he said, adding that there are only seven or eight potential clients in the state today.
Ehm recalled the fate of firms that figured in the state’s oil development history. Texaco acquired Getty which owned Skelly. Exxon recently merged with Mobil which had previously acquired Superior. BP and Sohio operate as one and have merged with Amoco. Chevron acquired Gulf. Tenneco doesnÕt explore anymore. Shell and Conoco are not presently actively exploring in Alaska.
Ehm said he had seen no evidence that newcomers or independents eyeing the state will create a great demand for independent consultants.
He said that if established firms needed outside consultants they would favor those that had recently left the company.
“They already have the information,” he said. “They’re not going to take anything new out.”
The new breed Some newer firms seem to benefit from the alumni advantage.
“Our group has had the advantage that most of our workforce was ARCO or BP,” said Chet Paris of Petrotechnical Resources of Alaska LLC.
“We are held to strict confidentiality agreements,” he said. “Most of our work is done on the premises and we’ve used the software and the hardware before,” he said.
Ken Boyd, director of the Alaska Division of Oil and Gas, agreed that prior corporate training could help get a consultant in the door.
“It’s not just confidentiality, but technology is changing,” Boyd said. “The hive technology is like an Imax theater, showing the geology in three dimensions. I remember doing the same work with colored pencil and a ruler.”
Paris said consultants could often get more done because they are unfettered by internal company politics.
“We’re pinch hitters brought in exclusively to do particular jobs,” he said.
Paris said he expected work to increase once the dust surrounding the buyout of ARCO settles.
Because of confidentiality most of the work is development work rather than exploration or step out, he said.
“We do field work, reservoir management, geology, geophysics and engineering,” he said.
“We also do well planning at Kuparuk, Milne Point and Prudhoe, and a smaller fraction of our work is for regional corporations like Doyon, CIRI and Calista,” he said.
Smaller energy firms rely on consultants In the case of smaller resource companies, consultants are hired when specialized expertise is needed, or when there is a need to do a lot of work in a short period of time.
“At small companies our work is fairly sporadic,” said David Lappi of Lapp Resources Inc.
“We may need significant land work in a short space of time, a couple of week’s work, and then our need for more services will be six months or a year away,” he said.
Lappi said he typically turns to consultants for well site geologists and land work.
Lappi’s company controls 40,000 acres near Homer under the state’s shallow gas leasing program which was instituted at the end of February. Lappi expected the shallow gas program to remain the province of smaller companies because of the small quantities of gas to be found at depths of less than 3000 feet.
“I don’t expect the majors to be big players unless significant amounts of gas are found,” he said.
Because smaller players are involved, shallow gas drilling may benefit the consulting industry.
Shallow gas probably won’t mean work for consultants However, shallow gas may not provide huge volumes of work for consultants. Companies seeking shallow gas won’t spend a lot of time analyzing data, according to Ken Boyd.
“They’ll just get a drilling rig and have at it,” Boyd said.
But some winners of shallow gas leases may not drill at all, having bid to speculate on a sale to a third party if neighboring leases pay off.
“Once they are issued, I’ll be interested to see if actual drilling takes place,” said Boyd.
Arlen Ehm concurred.
“Most of those leases, in my opinion, will never be touched,” Ehm said.
Gas exploration- the light on the horizon While active gas exploration on the North Slope is some years away, consultants could get a lot busier when it occurs, Boyd said.
“Once we look for gas on purpose, it will open up a whole new set of rocks,” Boyd said.
“Currently the leases are packed together on the water’s edge, the Barrow Arch,” he said, adding that gas prospecting will open lands as far south as the Alaska Range.
Big companies may also hire outside consultants to lend a fresh perspective as an antidote to getting wrapped up in their own perspective, he said.
“Sometimes you need an old timer, someone who’s walked the ground and looked at the rocks,” Boyd said.
Companies also hire consultants to deal with the government, and with native corporations, he said.
“It’s important to be aware of the customs of the people,” he said.
Consultants also are brought in for very specific tasks such as the moving of rigs, Boyd said.
Boyd didn’t foresee any major changes occurring as a result of the purchase of ARCO by Phillips.
“An awful lot of ARCO people remain,” he said. “Go out the door, change clothes, come back and you’re a Phillips guy.”
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