Paths to Deepwater in the International Upstream Petroleum Industry

Abstract

for consideration for the DRUID Summer Conference 2003 on: "Creating, Sharing and Transferring Knowledge. The role of Geography, Institutions and Organizations," Copenhagen, Denmark, June 12 th - 14 th , 2003 This paper presents an analysis of recent developments and adaptations of capabilities among a subset of companies active in the world's upstream oil and gas industry. These changes are due to this group of companies undertaking exploration and also production of hydrocarbon resources offshore, in deep-water. The change is profound, and recognised among industry participants in which "deep-water" has become a globally-signified term describing a category of activity. The study focuses partly on path-dependencies in this development. However, interactions among oil companies (or operating companies) and services and supply companies are crucial, so paths are partly at the industry level, and partly in terms of identifiable approaches of individual companies. Despite deep-water being an object of inquiry among some companies since the 1970s, a significant accumulation of activity has been on going since the mid 1990s. Informal industry standards recognise deep-water exploration and production as occurring in water depths of over 400 metres, and ultra-deep water exploration and production activities in water depths of over 1000 metres. The very currency of "ultra-deep water" emphasises that technological developments are on-going, and that definitions lag behind. Further, despite oil companies acquiring considerable exploration rights from governments in licensing rounds going back to the early 1990s (termed "acreage"), and despite hundreds of exploration wells being drilled, including much-publicised "record depths," the numbers of fully developed projects that are now in production is still relatively small. This draws attention to the sequential decision-making procedures of senior managers, to the long time frames involved in both exploration activity, and to the attendant decision- analysis and decision-making procedures within oil companies. Our analysis is developed along three critical, and inter-linked, dimensions: (1) the development of exploration capabilities among geoscientists in the upstream industry; (2) the development of engineering capabilities in both exploration and production; and (3) the organisation of these capabilities, seen both in industry terms, and in terms of decision- analysis and decision-making procedures of oil companies. Drawing from mainly theoretical work on capabilities, and the organisation of industrial activities, we contend that companies in the industry have had to adapt technologies, and also organisational patterns, that are well- suited to other forms of exploration and production activities (by default, "shallow water"). These had become increasingly routine and standardised during the 1970s and 1980s, so much so that major oil companies had been selling such production activities (or assets) to smaller oil companies, many of which used such acquisitions to enter particular areas, such as the North Sea. To pre-empt our detailed analysis, the major oil companies involved in deep- water exploration and production are exhibiting characteristics of intransitivity in the maintaining and developing their capabilities in house or close at hand. Crucially, and