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Investing in a downturn

Bruce Levell thinks now might be just the right sort of time to consider attending a really good conference, like PGC-8.

lkjResource industries struggle with the commodity price cycle.  This one is structural rather than psychological, and companies have few alternatives in response to it.  

The immediate priority, as with hypothermia, is to withdraw fluid (cash) to protect vital organs.  Options in the short term are few; hence, alongside substantive changes, the relatively less impactful travel bans, training budget cuts, and exhortations to ‘spend company money as if it were your own have to be deployed.  Colleagues of a certain age begin to mumble about having seen it all before (1986, 1998, 2008) and the industry may lose experienced staff.


However, for the ever-optimistic explorer, periodic downturns are creative opportunities.  Of course there is Schumpeter’s creative destruction: the bloated, newly ‘re-loaded’ prospect portfolio can be trimmed and the dross removed, commitments allowing.  Well-plans can be thoroughly reviewed and through the application of yet more science the probabilities of success better polarised into sheep and goats.  (Which is better?).   Obviously you can’t make discoveries without drilling but success rates also correlate (to a degree) with periods of reduced drilling rates, reflecting , in the jargon, the ‘value-add’ of actually thinking.  Operators at least can also look forward to that best time of all in the resource-price cycle - the period of the early upturn when equipment and service costs, reduced in the trough, have not yet risen, but investment is picking up and hence data collection and risk-taking are (momentarily at least) relatively cheap.

Research organisations know that the really important technological breakthroughs - 3D seismic, horizontal drilling, fracking - are the result not of killer technologies but rather of cocktails of technology that, through evolutionary development, mix to deliver intoxicating success.  Development of these technologies and the emergence of the associated new operating paradigms are no respecters of commodity cycles.  They march to their own drums - in the case of geophysics and geochemistry, for example, often controlled by developments in completely unrelated industries.  There is money to be made by those who can keep their heads and capitalise on the trending technology, even if they didn't invent it.


Downturns can also provide a pause for reflection, and consideration of strategies both corporate and personal - a time for investing in skills and thinking.  They are also not bad times to attend a conference or two, ideally one close to home to avoid that pesky travel restriction, and ideally, one with authoritative summaries and opportunities to handle real rocks.  Time to reflect, based on the accumulated experience of colleagues in the industry on which of those plays is truly likely to work. 

Oh yes, and to meet, talk to, and extract information from, those of a certain age who are mumbling about cottages in the dales and that ‘package’.

So, see you at PGC 8- September 28-30 Queen Elizabeth 2 Conference Centre London.  And do remember to use the company’s money as if it were your own, and sign up for the early bird discount before the end of April.

Bruce Levell, formerly of Shell, is Visiting Professor at Department of Earth Sciences, Oxford University