Management and Economics In the Oil Industry-A Review

Abstract

The history of the U. S. oil industry has been one of anticipating problems and adapting to change. The American consumer has been the problems and adapting to change. The American consumer has been the ultimate beneficiary of this ability. If the industry can retain the freedom to adapt and respond to meet current and future problems, there is every reason to believe that the successes of the past can be reflected in those of the future. Introduction The early years of petroleum exploration and production were like a gold rush. Bold men with a production were like a gold rush. Bold men with a lust for fortune reached out, as individuals or in small companies, to capture a share of the "black gold." The period was characterized more by a lack of organization than by any identifiable management system. Economic analysis was rudimentary in form and rather loosely applied during the late period of the industrial revolution - the last 30 years of the 19th century and the first 20 years of the 20th. However, except for short periods, the rapid expansion of uses for petroleum kept supply vs consumption or demand essentially balanced until the early 1930's. Then with the discovery of the great East Texas oilfield, the balance was destroyed and the "gold" in "black gold" vanished for a number of years. At about the same time the supply came into being, a new technological era began. The consciousness of conservation, or the prevention of physical and economic waste, was a prevention of physical and economic waste, was a prelude to understanding reservoir mechanics and prelude to understanding reservoir mechanics and to the great push to optimize production economics. The low crude-oil price caused by large surpluses prompted exploitation of technology to reduce costs, prompted exploitation of technology to reduce costs, both capital and expense. It is safe to say that management flexibility and the need for economic survival motivated the rapid advance of technology in the drilling and production fields. Even while exploration and production technology was developing, large oil corporations began applying it to their operations. Through this effort, they were able to integrate crude-oil supplies more effectively into management's control. This integrated system led to balanced companies and the beginning of internal research and development organizations. Competition forced steady technological improvements and not the least among these was more refined and accurate economic analysis of exploration and production activities. These technical changes provided great impetus for organized and well managed operations and a high degree of specialized training. No one can control the flow of events we call history, but the achievements of an industry, like those of a nation, can be measured in its response to that flow. By this yardstick, the U. S. petroleum industry has been remarkably successful during the last 100 years. Some measure of credit for that record (as with the successes and failures of nations) must reflect on the leaders of the industrythe managers who successfully anticipated many of the trends along the way and who adapted to others that came upon the historical scene unexpectedly. The ultimate criterion of any industry's achievement is its record of service to the public. By this standard the oil industry has had a considerable measure of success; the American consumer and U. S. industry traditionally have been provided with ample supplies of energy at reasonable prices. JPT P. 1342