It was a hot, humid day on June 21, 2005. I taxied back to the ramp with a designated examiner furiously jotting notes on a tattered clipboard. If you're a pilot you know all too well that the outcome of the test isn't always disclosed until you have parked the airplane, completed your shutdown checklist and headed back to the office for the debrief. There I sat across the table from the 70 year old plus, diminutive D.E. patiently awaiting my fate. Did I pass the check ride? Did I perform all the maneuvers within acceptable tolerances? For the love of Pete, am I an instrument-rated pilot or not? I did pass, and moreover, I truly felt like a pilot with a command of the aircraft armed with a comprehensive understanding for the flight systems, controls and a renewed sense of confidence.
Ironically, two years earlier to the day, I approached a Cessna 172 for the very first time with my baby-faced flight instructor. We sat in the aircraft for nearly an hour and reviewed the instrumentation and flight controls, and then began to discuss basic aeronautic principals that magically raise that hunk of metal off the ground, and the communication requirements vis-à-vis Air Traffic Control. Admittedly, that first foray into the world of aviation was both overwhelming and frightening. Apparently the expression on my face was not lost on the instructor who was used to seeing the same from every rookie. He cut short his monologue mid-sentence and said, "Don't worry, this will all make sense soon - just stick with it and learn as much as you can on your own time and before you know it, flying will be second-nature to you." The best advice he offered was saved for last. "Most important thing - don't be afraid to ask questions - it's my job to make sure you understand no matter how long that takes."
He was right. I asked, he answered, I learned and what was once an unbelievably complex venture now seemed completely understandable. After more than six years behind the controls piloting several types of aircraft, I have never stopped seeking out more opportunities to learn and working toward mastery. All new experiences in life seem complex at first pass. Just ask a medical school student or NFL rookie (I know a few of each) how they felt on day one. The honest answer is they probably felt like any intelligence they arrived with was surely sucked out of their cranial cavity the night before without notice. Thankfully, that is life and there are no short cuts. Likewise, sophisticated investors are no different. They all start out exactly the same way beginning by first identifying a sector that captures their interest which fuels a sense of passion, and then moves them to make a significant investment of their time and energy in an effort to thoroughly educate themselves.
Oil & Gas can be perplexing, especially if you know little or nothing about it, or have absolutely no prior experience in the energy sector. Fear not, over the course of the next four issues of The Crude Reality, we'll cover the basics and take a step-by-step approach to removing the veil of mystery.
Like the old saying goes, "Why do fisherman fish in the lake?" Simple, "That's where the fish are."
Leading the Expedition
The Petroleum Geologist is responsible for aggregating the raw data and applied science in order to identify a "prospect" (underground oil and natural gas reservoir), which is the hypothesis that a naturally occurring, commercially exploitable accumulation of oil and gas exists, at a clearly defined underground location." (Money in the Ground, 1985) Oil and gas prospects are 3 dimension entities in nature - there is a thickness that spans a definable area, most likely acres of area and are measured in "acre-feet". But you might be asking yourself, science is all well and good, but upon what is the science based and how can they be so sure that the data will accurately identify where a prospect can be found? The Petroleum Geologist comes equipped with - no surprise - tried and true geological principals.
Where Do We Look?
Oil fields are rarely found among volcanic formations, but prefer granite, which is one strong indicator that oil may exist. Natural erosion of granite produces clay, and when mixed with organic materials, creates chemical and physical changes which force out water and petroleum. These basins are the best hosts for oil prospects; in fact nearly one quarter of those identified basins have produced nearly all of the world's petroleum today. Some of these basins contain only oil, others just gas. There are some that harbor both. All basins are consistent in their physical characteristics. Each has a layer comprised of plant and animal material that has transformed over millions of years to produce petroleum (source rock). Second, each has a layer of rock with holes through which that petroleum may flow (reservoir rock). There is yet another layer of rock preventing petroleum flow (seal). Lastly, a layer of rock exists that allows oil to flow into a reservoir, but restricts further movement due to an overlying seal (trap).
To this point, it all makes sense, right? But unless you're Superman with X-Ray vision how is it possible to penetrate the surface of the earth and see that these conditions truly exist? Another great question.
Is There Really Oil Under There?
The first tool at the Petroleum Geologist's disposal is aerial photography and infrared satellite photos that identify trends which are then scrutinized and provide clues of geologic formations thousands of feet below. Combine that visual data with measurements of changes in the earth's gravitation and magnetic fields, and you're starting to put the pieces of the puzzle together and identifying even more indicators hidden beneath the surface. Finally, a seismograph transmits sound waves deep into the earth to map the underlying geology. This data is fed into a sophisticated computer which converts the information into an image of the rock below and may also detect the presence of oil and gas with a high degree of success. Petroleum Geologists generally produce two maps from their study - a topographic map showing the high and low areas in rock formations. The other indicates areas with the best porosity. Good prospects can generally be found in high areas compared to the surrounding area (oil and gas move to higher ground since both are lighter than water) and in areas of plentiful porosity (which provides for holding large accumulations of each).
So there you have it... the first step in oil and gas exploration. Now that we understand how a particular site is identified, the oilmen must now navigate through mineral leases, surface approvals and title work - all necessary steps in order to move the good stuff from the ground to the surface where it does the most good.
Scott F Whyatt
VP; Corporate Communications
LP Operating, LLC
Comfort, TX
http://www.lpoperating.com
