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unconventionals Black Swans Spread Their Wings At AAPG The Unconventional Black Swan and AAPG Singapore September 2012 The American Association of Petroleum Geologists (AAPG) 2012–13 President Ted Beaumont has had a long and active involvement with AAPG over the course of a prolific career in which, among other accolades, he was honoured with an AAPG Special Award in 1991 for his work on the Treatise of Petroleum Geology, a series of over 30 publications on which he was a co-editor, the same year he took to Australian shores as the PESA distinguished lecturer. Drawing on over 30 years’ experience in a variety of roles across the oil and gas sector, Beaumont has a number of interesting opinions on the state of industry, the challenges it faces, its potential for success, and its capacity for veering in seemingly unexpected directions that, with the benefit of hindsight, at once appear perfectly predictable. At September’s AAPG International Conference and Exhibition (ICE) Singapore, PESA News Resources (PNR) took the opportunity to sit down with Beaumont to talk in detail about his keynote presentation, ‘The Unconventional Black Swan Event’, in which he addressed the ability of seemingly unexpected events to wield a significant, long-term impact on industry.* By way of background, Beaumont told PNR that ‘black swan theory’ was developed by Nassim Taleb, a Lebanese-American essayist; Taleb’s 2007 book, The Black Swan: The Impact of the Highly Improbable defines the theory as an event characterised by: “rarity, extreme impact, and retrospective (though not prospective) predictability.” While the theory was originally conceptualised around events occurring in financial markets, Taleb’s 2007 book broadened the metaphor, labelling almost all major scientific discoveries and historical events black swans—for instance, labelling the rise of the personal computer and the subsequent ascent of the internet as black swan events. Beaumont has applied this rationale to the petroleum industry, specifically to the rise of unconventional resources in the US; the shale revolution that in a relatively short period of time has dramatically transformed the country’s domestic and export market. “I started thinking about it, I thought how many people saw this coming, and the impact it has had: it has had just an incr edible impact”, he told PNR. “So I thought of the black swan term—maybe that’s what this is, this is a black swan in our industry.” Citing a quote from influential and seminal petroleum geologist Wallas E. Pratt, that “Where oil is first found is, in the final analysis, in the minds of men”, Beaumont observed inspiration and innovative thinking have the powerful capacity to transform widely accepted rationale. “It is interesting to think about it, your imagination is really the limiting factor, you know it’s your ability to take the information and create some new idea from it, and that is his point,” he told PNR, noting there was once a school of opinion firm in its conviction that Saudi Arabia bore no petroleum. Saudi Arabian production commenced in the 1950s—and, as Beaumont commented, it is “hard to imagine now there were people who used to say that there is no oil in Arabia—this was an example to me of black swan.” Yet, and hindsight may well be a wonderful thing, how is it that we can collectively miss the apparently blatantly obvious? “Well, one reason is that we have this natural conservatism from our training and this makes us ignore the significance of what we don’t know. We tend to think, ‘I know this, and that’s how it is, I don’t have to worry, I understand this now,” Beaumont observed. “We have psychological biases, where we miss these things.” Beaumont cites theories of peak oil as an example of the influence widely accepted convention can have on thinking in the industry. The Hubbert peak theory (developed by Shell geoscientist and co-founder of the Technocracy movement, Marion King Hubbert) dictates the rate of resources production, which initially increases rapidly, will reach a Ted Beaumont, President AAPG. * Arriving in Singapore just in time to attend Ted Beaumont’s Key Note, Welcome address, and not having heard the Black Swan Theory before, I was surprised to learn it is a term used to describe an unlikely event. Anyone living in Western Australia will know that the Black Swan is common-placed, and forms part of the Coat of Arms of Western Australia. So the next time you hear the term used, explain why the term is a misnomer to West Aussies. Brian Wickins 14 | PESA News Resources | December 2012 / January 2013
unconventionals maximum and decline, following a bell-shaped curve. Using this methodology, Hubbert predicted the world would reach peak oil around the year 2000 (Figure 1). Fig. 1. 1956 Prediction and Hubbert (1903–1989). Source: en.wikipedia.org The discovery and development of unconventional resources in the US has, however, led to a redefinition of peak petroleum forecasts, with potentially far-reaching global ramifications. Over the past decade, the development of new technologies in recovering shale gas have transformed the American energy marketplace from a position of shortage to one of glut. Indeed, shale gas currently accounts for roughly 30% of total US gas production and there are estimates it could reach as high as 50% by 2040. To put this into context, back in 2000 US shale gas production was around 1% of total gas production. Beaumont stated, rather than declining, US gas production is now actually increasing, essentially reversing the natural production decline predicted by Hubbert (Figure 2). “No one thought that would happen. I did not think it would; so I think there is reason to believe, we are going to go higher, for sure— right now we know we are.” Fig. 2. Savings to the US Economy. Ahlbrandt, Search and Discovery, 2012 | Source: Demming, 2000 “I heard Robin West from the AAPG say the USA went from importing 65% of its gas requirements five years ago, and recently down to 45%. He said in 2020 w e will be importing only 25% of our needs. I never thought that would happen! As I got thinking about this I came up with some conservative savings to the US – US$125 billion a year that stays in the US. By the time we are down to 25%, I think the saving will be be around US$275 billion … every year. Every three and a half years that is like a trillion dollars that stays in the economy. So it is real dollars.” Ted Beaumont, September 2012 Lower 48 states shale plays. In turn, further technological development may well also result in deviations from Hubbert’s peak oil production curve. Explorers in the North American onshore market are now almost exclusively focused on unconventional plays, and Beaumont noted current trends have seen explorers becoming increasingly focused on tight oil sands, with new technologies, including drilling and completion procedures and methods of petroleum system modelling, capable of bringing about further potential changes in oil recovery techniques (Figure 3). Tight oil, trapped in low permeability reservoirs, has been identified in plays throughout oil producing regions in Canada and the US; as Beaumont explained, while conventional petroleum is found in structural traps, unconventional petroleum is found in stratigraphic traps (Table 1). Shale plays Basins Current plays *** Mixed shale & chalk play Prospective plays *** Mixed shale & limestone play Stacked plays *** Mixed shale & Shallowest / youngest tight dolostone- Intermediate depth / age sillstone-sandstone Deepest / oldest Fig. 3. Source: Energy Information Administration based on data from various published studies. Updated: 9 May 2011 December 2012 / January 2013 | PESA News Resources | 15
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