U.S. News & World Report v119, n2 (July 10, 1995):40 (2 pages).
COPYRIGHT U.S. News and World Report Inc. 1995
Wytch Farm on England's South Coast is a windswept mass of heather and scrub pine that unfolds in bands of red, yellow and green into the largest, and one of the most beautiful, natural harbors in the country. A favorite of outdoorsmen, the gentle landscape presents virtually no clue that beneath the sand and sediment that mold the floor of the English Channel, British Petroleum is pumping out 100,000 barrels of crude oil a day. That's because an onshore drill, with sensors that can guide it through a maze of subterranean rock, is reaching about 1 mile down and 4.2 miles across--all without touching a seacoast so fragile it's protected by a national trust.
Horizontal drilling and other revolutionary techniques like three- dimensional seismic testing are rekindling the oil exploration business after a decade of inactivity caused by weak prices and costly environmental restrictions. Emerging from five years of cutbacks and reorganizations, energy companies are showing a willingness to revisit bypassed oil fields and take a chance on new ones. They are encouraged by rising prices, now approaching $20 a barrel, as well as by innovative technologies that promise them more barrels for their exploration buck. Leading the scientific charge, at Wytch Farm and in 100 countries throughout the world, is Schlumberger Ltd., the blue-chip oil services company that first dropped a wire line down a well and kicked off a geophysical revolution almost 70 years ago.
It is for good reason that Schlumberger finds itself a perennial on lists of the world's best-managed companies. As a recent five-month, 25 percent rise in its stock price suggests, the $6.7 billion company has held its edge in the highly competitive energy services market despite a wrenching boom-bust cycle that has forced lesser competitors out of business and also-rans to merge. Ironically, it has done so by spending its way out of problems.
In the wildcatting early 1980s, when $31-a-barrel oil seemed headed for $100, intense demand for Schlumberger's high-tech well-logging and drilling services made many shareholders millions of dollars. Press accounts celebrated Schlumberger's leader, Jean Riboud, and glamorized the corporate culture--from its brainy, multilingual work force to its Philip Johnson-designed labs.
Then came the glut. By 1986, prices had plummeted to $12, and oil services stocks plunged with them. Riboud's death in 1985 was followed by squabbles over his successor. Enter Euan Baird, an independent Scot who sold off an unprofitable semiconductor division, accelerated layoffs of nearly half the company's 75,000 employees and returned the firm's focus to its core business of testing rock formations for hydrocarbons.
Most important, Baird continued a prized Schlumberger tradition of maintaining or boosting spending on research and engineering even as profits declined. In fact, Schlumberger has historically spent as much on new-product development as have all of its competitors combined. It is that commitment to science, experts agree, that has secured it 62 percent of the wire line market today.
Schlumberger traces its history to 1927, when brothers Marcel and Conrad Schlumberger devised a method of mappinggeological formations by measuring rocks' resistance to electricity. Today, company engineers use a multitude of techniques to coax out crude. Customers have had only one complaint: Schlumberger's technological prowess doesn't come cheap. During the boom, oil companies were willing to pay a premium for just about any method that might get the precious stuff out of the ground. But with the worldwide rig count now at the lowest level in more than 20 years, oil companies want technology that's more effective and less costly.
Schlumberger engineers are trying to answer that demand with such efficiency-boosting innovations as geological steering, a technique that essentially allows drillers of horizontal wells to see where the borehole is going. A huge breakthrough in itself, horizontal drilling nevertheless presents problems because long, shallow oil reservoirs don't follow a clean path. Schlumberger overcomes this limitation by putting a sensor at the end of the drill bit. This allows the driller to follow the contours of the hydrocarbon deposit, avoiding wrong turns that can cost thousands of dollars a foot.
"Geosteering" technology helped boost the 1994 revenues of Schlumberger's Anadrill division by 25 percent. By contrast, the company's Geco-Prakla marine seismic division has proved more troublesome. Geco- Prakla scientists look for oil-bearing formations by measuring sound waves reflected off the Earth's surface. Baird says the division's 16 percent drop in revenues last year reflected intense competition from companies like Western Atlas as well as the cost of switching from two-dimensional to three-dimensional technology. But even the seismic division is now showing signs of health, thanks to technological advances. With powerful new computers, for example, a survey that used to take a year to complete now takes just six weeks. And three-dimensional technology has cut the odds of drilling a dry hole from 80 percent to 50 percent.
Such rapidly changing technology is leading oil companies to millions of barrels of black crude under previouslyuntapped salt domes in the Gulf of Mexico--and even more in burgeoning markets like Africa, Indonesia and China. A consortium of oil companies has contracted to develop offshore fields in Azerbaijan, pending the settlement of political squabbles over the route of a pipeline, and Chevron is pumping oil in a joint venture in Kazakhstan. Of the estimated 3 trillion barrels of known oil throughout the world, 2 trillion barrels are considered unobtainable at today's prices. "If we can increase recoverable oil by just 1 percent," explains Brian Clark, head of Schlumberger-Doll laboratories, "that amounts to more than a year's supply of oil for the whole world."
With demand growing at an estimated 1.1 million barrels a day, Baird is confident that Schlumberger is bouncing back after a disappointing year in which profits dropped 8 percent, to $536 million. The evidence: First- quarter profits rose 21 percent from last year, prompting an increase in dividends for the first time in 10 years. The company is also sitting on $1.2 billion in cash. Baird says Schlumberger may use the money to buy back shares or make a small acquisition.
As he moves into the third year of his five-year plan to boost
earnings by 50 percent, Baird nevertheless keeps an eye on competitors
like Western Atlas, Halliburton and Dresser Industries, all of which have
been strengthened by consolidations. But overlooking the Manhattan skyline
from his simple 44th-floor suite, he makes a point of singling out the
uniquetalents of Schlumberger employees. These top geologists, physicists
and mathematicians, recruited from 70 nations, move from one remote
outpost to another, assuming huge responsibilities in an organization with
unusually lean management. In exchange, they are free to push the limits
of their creativity. These are the kinds of resources, Baird suggests, the
vagaries of the oil market can't touch.
[Drilling]
[Clearview]
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[HEP]
[Physics]
[UCSB]