Clay has posted a very insightful essay on the state of the industry today. Welcome to my world.
The most serious threat to the IOC’s, IMO, is the critical shortage of talent. Personnel costs have skyrocketed. Most new wells are extremely deep (15,000+ feet) and need weeks to drill at rates upwards of $250,000 a day. Drilling costs doubled from 2003-2006, driven largely by personnel costs. It’s hard, but not impossible, to get your hands on a drilling rig. Keeping it fully staffed with experienced crews running 24/7 is damned near impossible. Salaries have exploded as a result. Houston, the energy capital of the world, has become a town of mercenaries; people just leave after 3 months because they get an extra $1.50 an hour. That’s been going on for the past 2-3 years now and salaries are up 50-100%. For the companies, it’s only going to get worse. I can’t find it now, but I remember reading that 50% of one of the IOC’s geology and engineering staff will be eligible to retire by December 2009. New projects get more and more complicated with fewer and fewer engineers to work on them. Demand for engineers is going up 40% per year with no end in sight. Just imagine how desperate companies are going to get to retain talent then. It’s great for individuals, but it’s sapping the industry’s ability to get shit done. Projects keep missing deadline after deadline.
