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To: carl who wrote (8812)	2/23/1998 5:16:00 PM
From: Charles A. King	Read Replies (1) \| Respond to of 13091

An interesting article indeed. And I just let my SA subscription drop after reading it many years. It is one of my favorite magazines. Too bad they don't have that article on their website except for a brief summary. sciam.com One thing that puzzles me about the article and why I must read it. Why would oil producers grossly overestimate the size of their reserves? Do they think it is in their interest to lull the world into complacency until another oil/energy shock hits the world like in the 1970s? Shiek Yamani who had been in charge of the Saudi oil industry in the 1970s but was fired in the 1980s, wanted to crash the price of oil and hold it down to bankrupt as many oil producers as possible, such as Mexico. His philosophy was to destabilize the world's oil production industry, making it easier for the most powerful producers to dictate policy. If I have that wrong, somebody speak up. My opinion of why the Saudis are pumping oil as hard as they can now with energy prices so low is to promote profligate energy consumption and reduce interest in energy production and research. The oil shocks of the 1970s sure came as a surprise to me. The only warning I ever had was a friend who stated that at the rate energy use was growing, at a certain time in the future, the earth would be glowing a dull, cherry red. So far, the one energy industry that works the hardest at unmitigated hype is the Nuclear industry. At the outset they claimed energy would be so cheap it wouldn't be worth the cost of metering it, but it has turned out to be the most politicized. I wouldn't count on nuclear to bail us out of anything unless we want to be like France. Personally, I don't believe half of what I hear from that industry. Some time ago, I quoted a column by Alan Abelson in Barrons which stated that world oil production was around 42 million barrels a day, or something like that. Michael Currie disputed that by saying he thought it was more like 63 million, but never got back to us with a source. Well, I see one of your sources says it is 63 million. petroconsultants.com OPEC produces 28 million b/d currently. Charles

To: carl who wrote (8812)	2/24/1998 3:57:00 AM
From: Michael T Currie	Read Replies (1) \| Respond to of 13091

Carl, Just a few comments on some of the statements in this article: > Contrary to most oil industry forecasts, global production of conventional oil will most likely begin to decline within ten years, possibly resulting in radical increases in oil prices, according to an article published in the March issue of Scientific American. These sorts of warnings have been issued constantly since about 1890 (a few years after the first commercial oil wells were drilled in Pennsylvania). The industry has always responded with geographic moves and/or technological advances. It is absolutely true that oil is becoming more difficult to find in the quantities that attract major companies in areas of simple drilling/production (e.g. shallow waters of the Gulf of Mexico) or political stability (U.S., Britain, Norway, etc.). We are moving into very deep waters - I am presently preparing to develop a field in over 4500 feet of water - and countries with a history of political and social unrest. This march away from traditional exploration areas by the majors has left a vacuum which in many cases is being filled by the smaller independent companies, many of which are doing very well indeed. This should not be seen as a 'mopping up' exercise. It should be obvious that firms with lower fixed costs can deal with smaller accumulations and still be very profitable, so, for example, a 10 million barrel field in the offshore Louisiana area that was ignored by an Exxon is a company maker for Efficient Exploration, Inc. There are a lot of these around. If someone wants to finance me to the tune of about $5MM to start, I'll prove it<vbg>. The point is, the history of the industry tells us that if the oil is there to be found and produced in a commercial way, it will get done. > Countries of the former Soviet Union often report wildly optimistic estimates of ''proved'' reserves that are only ten percent likely to be met. Subsequent official accounts of world reserves often fail to correct such inconsistencies. The evaluation of these reserves is far too immature to make such statements, in my opinion. I will note, however, that the authors, as consultants and not as staff of the major oil companies that have taken licenses and have begun to evaluate the details, are not in the best position to provide a view on ultimate recovery of existing fields and certainly not on reserves in undrilled areas. Over the years, I have been fortunate enough to see and sometimes participate in the future of the industry. There is absolutely no doubt in my mind that the exising and potential reserves in places like the Caspian, West Africa, Siberia, ANWR, Brazil, etc., etc., etc., are enormous. The stability of the governments and people in such areas is a different matter. We do a thorough risk analysis before entering a country, but these are only as good as the assumptions made from a historical review. Who really knows what Angola will look like over the 10-30 year production period of a field? So, there is the additional wild card on the table. This the major difference from the past. > Many observers pin hopes on expected technological advances. Count me in as one of these. Yes, the cheap and easy oil has been found. That's a fact given our perceptions of what is possible today, but it wasn't very many years ago that production in the Arctic or in 600 feet of water were huge technological challenges. Now either can be done with relatively inexpensive, off the shelf items. Today's impossibility is tomorrow's routine operation. If it is not obvious, I have a tremendous faith in the ability of the oil industry to utilise/adapt/invent the technologies to overcome the problems that will be faced over the coming decades. Sorry to ramble on so much - just sort of got going. Petroconsultants is a well respected company. Please regard my reply as a somewhat more optimistic view from someone with a poorer vision of the industry as a whole but who is 'living it'. Mike