Will there be blood?

I finally got an opportunity to work on a conference outside of the institutional finance area. I’m now working on Oil and Gas Outlook Brasil, taking place in May in Rio.

It’s an exciting industry. While oil companies are some of the largest and most influential multinational corporations on the planet, my image of what happens on an ocean oil rig comes from the movie Armageddon – a hardy and ragtag crew of somewhat shady characters engaged in a highly skilled physical labor. Often, equipment is limited and individualized – some oil rigs and vessels are named. In one scene, after breaking a drill head during a simulation, a driller defends his technique by claiming that the real rig would have performed differently – a testament to the nuance of the equipment.  

The newest frontier in oil exploration and production is deep water oil fields. Companies running deep water platforms in the open ocean, being out of reach from the sort of land support available from closed water operations, must adopt strategies for safety and infrastructure learned from navel convoys. Extracting oil from beneath the surface of the Earth is a gritty business.

On the other hand, the oil industry represents the pinnacle of scientific and business process innovation. As large multi-nationals dealing in commodities, oil companies must, um, refine, their business processes, to compete on an open market with a non-differentiating process. 

The oil industry also includes high science. The discovery and extraction of oil is planned and improved by scientists on the cutting edge of geology, chemistry, and physics. I’ve been recently made aware of just how little we know about the Earth’s crust and ocean depths after reading Bill Bryson’s A Short History of Nearly Everything and seeing the Discovery Channel’s Blue Planet series.  Reading about the oil industry also points to the nexus of pure science and pure marketing. In the first few pages of Daniel Yergin’s The Prize, we learn that before rock oil was used as an illuminant, it was used as patent or folk medicine! I guess when you think about it oil comes from the earth, and minerals are considered essential for health, but it makes you wonder which of today’s health products are tomorrows internal combustion engine lubricants!

A a few company men have told me that they’re holding back further drilling because they’re wary of the Brazilian government creeping hand.  It is the first time I’ve spoken with industrial leaders who are holding back their bidding because of excessive intervention, reminding me a bit of Atlas Shrugged, where an overzealous government destroyed the country’s industry when leaders of business and science withheld their expertise. I found this tidbit interesting because prior to Oil & Gas Outlook Brasil, my conferences had all been institutional finance. While people often equate the financial industry with free markets, I noticed in Atlas Shrugged that any sort of collective ownership or decision making was generally vilified, and the financial world is made up in great part by public stock holders, corporate boards, and government bonds. The intrusion of government regulation or ownership into this mix hardly seemed to create an impurity. Additionally, the tools used in high finance are abstractions such as options and structured products, as opposed to the objective ideal of empiricism. 

Quite conversely, oil exploration and production creates a tangible product with an observable and replicable process under demonstrable and traceable leadership.  I’m looking forward to spending the next few months speaking to these folks as I prepare this conference.

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