Norwegian Model – the key to Australian sustainability 9 Apr 2013

Canadian by birth, Australian by adoption and a global traveller through his profession, Fugro COO for Geophysical and Geological Services, Steve Thomson, believes Australia could look to Norway to derive lasting benefits from its resources boom.

Three decades of knowledge from working as a geophysicist in all continents of the earth – barring Antarctica – have given Thomson an aerial view of the changing dynamics of the oil and gas sector, having first cut his technological teeth in mining before fulfilling his wanderlust passion pursuing hydrocarbons.

Now more settled in Europe with his family, Thomson is able to reflect on his odyssey and the shifting landscape of the "wonderful world of oil and gas" – notably 3D seismic and its profound effect as an exploration tool.

"Seismic has established itself as the number one tool in the exploration environment. While it is a wonderfully suitable tool and while it has been very exciting to see how Geoscientists have been putting a great effort into redefining the imaging quality of the seismic and its connection with physical earth properties, we still have a long way to go," he said.

"In the end, what we all want to do is create an earth model using petrophysical characteristics so we can understand what's going on down there. The closer we get to that, the better our decision-making in relation to risk aversion. The more you know, the fewer mistakes you are going to make, the less money you are going to waste and the more efficient you are going to be. For oil and gas explorers and producers, that is becoming more and more important," he added.

From the perspective of an oil and gas professional with significant non-seismic experience, Thomson believes the holy grail of geological understanding will come within grasp by assembling various geophysical components and bridging the communication divide between professions.

"Consider the creation first of all, of the 'geoscientist', as opposed to the 'geophysicist' and the 'geologist'. They came from different backgrounds, but we now have (integrated) geoscience positions where we are trying to overlay all of this information and understanding. More recently, geoscientists are increasingly communicating with the production engineers.

"The process of integrating this information across the geoscience-engineering divide has been improving, which can only be positive for the industry. The more we talk, the more we learn from each other. It is important for the geoscientist to understand what problems the engineers are really facing. Geoscientists are not trained to understand engineering issues, so, we have to talk to those guys to really understand what it is they are trying to do. You see advances in that relationship in terms of how those two groups are working together – that's exciting."

Thomson said the industry needs to look outside the box to optimise development of the earth model.

"Every methodology has its strengths, so what you need to be doing is looking at the strengths of each methodology and pulling out the associated information. Seismic is extremely good at defining interfaces between layers. When you are looking for oil and gas, it is slightly less good at telling you what is happening within those layers. Although it is getting better, it does not necessarily directly respond, for instance, to some of the physical parameters that define whether there is hydrocarbon content in the rocks.

"If you look at electromagnetics, which has recently received new interest in oil and gas exploration – I wouldn't use the phrase direct hydrocarbon indicator, that is going way too far – but the physical parameters that it responds to, are significantly affected by the presence or absence of hydrocarbons. You can take a measurement and you can have some sort of model related to it, just as you would relate seismic velocities to rock densities.

"I think geoscientists tend to focus on: 'can you define whether there is oil and gas there or not, or whether there is likely to be oil and gas.' The engineers, of course, are asking one hundred more questions. Their problems start when they find the oil and gas and proceed from there. They want to know where is it flowing, how long is it going to flow and how to develop the resource most economically? This requires detailed information that the geoscientists have really only started trying to get to grips with."

Gazing into his crystal ball, essentially Thomson doesn't envisage significant change in the exploration environment, in contrast to the areas of development and production.

"Consider instrumenting the reservoir. Engineers are starting to see that if they did some of these things, like putting arrays of seismic and non-seismic geophysical equipment over a reservoir, they will be better able to steer their production decision-making. I think we are on the edge of a step-change in this area, in particular in the deep water environment. Just look at developments going on in places like Brazil, and the way in which some of the NOCs are taking a very aggressive role trying to become world leaders by developing these sorts of resources in their domestic environments. You are going to see companies putting big efforts into trying to take the instrumentation of the reservoir up to the next level.

"My history has been in exploration, but the big change I see is in the utilisation of that same technology in the production environment," said Thomson.

This initiative, he adds, is largely being driven by NOCs because they have a socio-political as well as an economic interest in it.

"The two are inextricably intertwined. Some of these countries' economic livelihoods depend on oil and gas. Brazil is affected by this. Mexico is also in that situation. In addition, society, infrastructure and the stability of the government is dependent on them being able to develop their resources and becoming masters of their own future."

By contrast, IOCs are becoming increasingly constrained by the decisions of NOCs who have controlling mandates over highly prospective regions of the globe.

"The IOCs are learning how to deal with changing rules in that environment, while most of the governments are naturally interested in having their NOC as the major operator in their own backyard. As a result the NOC's get first pick at what they develop and in parallel they are creating their own home-grown expertise. As a consequence service companies are being asked to assist NOCs in dealing with their technical challenges. That is one area where we are seeing a real drive towards going to the next level in the production environment."

Consequently, the NOCs are striving to actively drive research and development in a process which Thomson describes as requiring, "human resources trained in the art and science of exploration and development."

"If you look at what some of these countries are trying to achieve, the targeted rate of development is quite astounding. While they are going through that process they probably still need help – from IOCs or from technical service providers, but there is no question that what they are trying to achieve is a home-grown, human resource base that is capable of taking on the development challenge themselves. This, howeverer, is going to take a decade or two.

"This will be difficult to do alone. The IOCs have a tremendous knowledge resource which they built over not just decades, but a century It is difficult to replicate that quickly. The NOC's are up against a steep learning curve. In the meantime the social, political and economic pressures will be such that it will really require more cooperation between the two groups."

Conversely, Thomson says some of today's NOCs could be the IOCs of tomorrow with merger and acquisition activity likely in various stages of the privatisation process as NOCs pursue international objectives.

This scenario begs the question: Is there a case for an Australian national oil company?

"Don't go there!" said Thomson.

More critically is that Australians, once deemed "very good value as a global human resource export", are pricing themselves out of the market. This scenario, continued unabated, will affect companies' decision-making in building future talent bases.

"Australia needs to be careful. In the short term there is the two speed economy, with tension being created between segments of society associated with the "have"and "have-not" industries. In the longer term there are self-rectifying forces as decision-makers shy away from investing in high-cost environments.

"There is a pervasive myth that there are all these resource jobs in Australia, while in reality the industry employs less than 1.5 per cent of the country's workers and actually those jobs aren't applicable to the majority of Australians. Due to the skills required, the majority of Australians can't apply. The universities and industry have not been training enough people within Australia, even though arguably five to 10 years ago all the companies knew exactly who they would need today because of the long-term nature of the project planning. We all have to take some responsibility for that!"

This brings us to an aspect of the Norwegian experience, which Thomson believes Australia would do well to consider.

"Norway is also not a cheap place to operate. For that reason companies make decisions correlating to cost, but Norway also made the decision to export its capabilities. They have created two resources out of the oil and gas boom; they have created savings, which I think per capita are the largest perhaps in the world, and they have created a technological, human capital resource base, a knowledge resource base that they decided to leverage off. Australia might be able to learn something from that," said Thomson.

Germany is another example of a country that has optimised its human capital and is flourishing.

"Germany does not have a lot of natural resources, so in some ways it is the opposite of Australia. What they do have is human capital, and they have invested in that. It is a knowledge-based economy in the purest sense, and it is also an export driven economy, relatively speaking, because it has that knowledge base.

"They have done an amazing thing. Their labour costs a decade or so ago were among the highest in the world. No longer. They have gone through a period with the unions, the politicians and the leaders of industry working together to hold steady or reduce their cost per unit output. Some people are pointing a blaming finger at them for that, but I think they should be applauded. They have taken the most important resource and they have continued to train and create more knowledge as they go along and at the same time they have reduced the cost base on which it operates. Whether you are a country or a company, that is the recipe for success. How can you blame anybody for that?

"So Australia needs to decide where it's at and take the sort of decisions that over the longer term will maintain that competitive advantage. It does not have the same competitive advantage as say maybe Germany, but the big lesson is to understand where your advantage sits and then make decisions that help maintain improvement.

"Ultimately, you always end up having to invest in your people, because everything else is transient."

Thomson has some sage advice for aspiring young geoscientists: "Ask a lot of questions, don't be afraid to do that first. Listen a lot, learn a lot, try a lot of things. Try some crazy things. Try to push the bounds of what you are given and let it take you in new directions.

"Sometimes those efforts aren't going to work. But it is better to try those things out early in your career. Show that you are creative, show that you are inquisitive. Later in your career you aquire 'wisdom', which becomes more appropriate, but take the chance youth gives you to make mistakes.

"Then be true to yourself, I mean believe in what you are doing and be honest with yourself and your bosses. Show that you work hard and trust over time the system will take you in the right direction. That does not mean that every single decision that affects you will seem to be fair or to be the right one, but I think good people who do good work and throw themselves at what they do with an open and inquisitive nature will naturally have success."

He said some will thrive in the risk and reward environment of the oil and gas industry that appealed to him, although his eldest daughter is pursuing a career in the arts and humanities.

"My children have asked me whether they should work in the private sector or the public sector – a good question. I would not be happy in the public sector! I have to be in an environment where things are bottom line driven. You are responsible for the result and if it's good, it's good and if it's bad you get blamed for it. But everyone has to know what fits for them.

"Get yourself into a position where you can be passionate about what you do. That's the key. I think it is important to tell your children that – they don't have to be geoscientists or technical." 

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