Theriot on Priest, 'The Offshore Imperative: Shell Oil's Search for Petroleum in Postwar America'
Tyler Priest. The Offshore Imperative: Shell Oil's Search for Petroleum in Postwar America. College Station: Texas A&M University Press, 2007. xi + 317 pp. $39.95 (cloth), ISBN 978-1-58544-568-4.
Reviewed by Jason Theriot
Published on H-Energy (July, 2010)
Commissioned by Joseph A. Stromberg
Offshore or Bust
In 1947, the United States became a net importer of crude oil. American oil companies have since struggled to find and replace domestic reserves in this oil and gas province. Technological innovations and the demand to produce more oil pushed the oil companies further out from the overworked inland fields, to the shallow waters off the nation’s coast, and ultimately into the deepwater of the Outer Continental Shelf and beyond. In his book, The Offshore Imperative: Shell Oil’s Search for Petroleum in Postwar America, Tyler Priest provides an intriguing historical perspective on one of America’s leading oil companies, Shell Oil, during this important era of offshore oil discovery and the race to stave off domestic depletion.
Priest examines Shell Oil’s unique history in the United States and focuses on the company’s exploration and production (E&P) activities offshore. Priest tells a compelling story using oral histories, corporate records, and archival material of how people, technology, and long-term business strategies led Shell deeper into the uncharted waters of the Gulf of Mexico to search for petroleum. Shell emerged from the Second World War with a severe shortage of crude oil and a weaker market position than most of its American rivals. With geographic constraints that kept the firm from operating abroad and competing with the interests of its parent corporation, Royal Dutch/Shell (the “Group”), Shell Oil made a calculated gamble to bet the company’s future on finding and producing oil offshore in the Gulf of Mexico. Priest argues that Shell’s long-term profitability and survivability depended on offshore exploration and production. In order to succeed as an E&P company, he contends, Shell’s managers had to rely on the technology developed by the company’s expert geoscientists and engineers. Over time, these technological developments helped shape Shell and the modern offshore industry.
The first few chapters describe Shell’s earlier history before the war and the decade that followed. Priest shows that with sizable prospects and discoveries and successful acquisitions in the 1930s and 1940s, Shell gradually asserted its independence from the Group and staked its claim along the Gulf Coast. Coastal Louisiana’s salt dome fields, such as Bayou Black and Week’s Island, provided the company with a base of knowledge about operating in a marine environment and a solid source of production. Furthermore, the advent of new equipment, such as shallow-water submersible drill barges and seismography, allowed Shell to plunge several miles offshore at greater depths. Priest argues that the ability of Shell’s geoscientists to identify and accurately predict the locations of major oil reservoirs became a hallmark of the company’s business strategy that blazed the trail for deepwater developments.
Priest explains how in the late 1940s, Shell established the Bellaire Research Center (BRC) in Houston to centralize the company’s E&P research and to “study the physical, chemical, and geological aspects of each problem under consideration” (p. 23). By the 1950s and 1960s, Shell’s well-funded Bellaire research lab and its engineering center, Delta Division, in New Orleans became the company’s epicenters for technological advancement in the areas of subsurface soil composition, wave dynamics, platform design, geologic identification, and seismic exploration. The author examines how Shell’s managers, many of whom had geology or engineering backgrounds, developed aggressive, long-term plans based on these technologies and guided the company over the decades to explore and produce at new depths that consistently set industry precedents. By correctly interpreting new data and applying new methods, Shell found several large oil and gas fields in the Mississippi Delta region. As Priest notes, the prolific discoveries at the Main Pass and South Pass fields not only justified the enormous costs involved in continuing offshore development, but also established a “lasting foundation for Shell offshore in the Gulf”(p. 48).
Shell’s technological evolution and adaptation in the field of E&P in offshore oil are at the heart of this book. Priest argues that with competitive leasing for federal lands and increased costs in producing in deeper waters, it became imperative for Shell to develop technological solutions that made offshore oil more economical. The author offers numerous examples of innovation and carefully analyzes how these advances consistently improved Shell’s position as an industry leader in the Gulf of Mexico. For instance, in the late 1950s and early 1960s, a Shell engineer developed a drilling process using a special light-weight drilling mud, instead of heavier content that reduced “geopressures,” and dramatically improved the rate of producing deep wells. Shell also excelled at adapting to technologies developed by other companies, such as ODECO’s revolutionary submersible drilling vessel, Mr. Charlie, that drilled Shell’s first wells in thirty feet of water. Shell led other technological breakthroughs, such as the first semi-submersible floating drilling rig, Blue Water I, for drilling at much deeper depths. Although Priest does recognize some advances made by other oil companies, contractors, and fabricators, the bulk of his storyline closely follows the progress of only one of several firms that excelled in the offshore waters.
The discovery and application of the “bright spot” method of seismic interpretation, arguably one of Shell’s greatest technological accomplishments during the early offshore era, revolutionized the way in which Shell and others searched for petroleum. Priest explains that the concept of detecting these subsurface oil traps had been around for years; however, no one had yet used this theory to explore an actual field. In the late 1960s, a Shell geophysicist, Mike Forest, began experimenting with amplitude reflections on seismographic recording and identified hydrocarbon traps deep below the earth’s surface. Shell first applied “bright spot” technology in an offshore oil prospect code-named Posy, which the company successfully bid on in the 1970 lease sale. Posy became a major discovery containing more than 700 million barrels of oil, one of the largest fields ever produced along the Outer Continental Shelf. This proven technology gave Shell a competitive edge in lease bidding and in E&P, and ultimately helped the industry push further out to even greater depths in the deepwater Gulf of Mexico.
The Offshore Imperative also touches on the political, economic, and environmental history of the evolving offshore oil and gas industry. In addition to the challenges of finding and producing oil offshore, the company faced difficulties from the ever-changing political landscape, the emergence of the environmental movement, major offshore disasters, the energy crisis of the 1970s, and the downturn of the 1980s. Priest argues that Shell survived the turbulent years, costly mishaps, and miscalculations because of management’s cost-cutting methods and the company’s ability to produce a barrel of oil cheaper than most.
The 1980s became a pivotal decade for Shell. The company poured most of its profits into deepwater technology at a time when most firms reinvested their profits from the 1970s boom with mergers and acquisitions. Just when the Gulf of Mexico appeared to be played out, Shell pushed further offshore and launched several major projects in deepwater (1,000 feet) and even in ultra-deepwater (beyond 3,000 feet) to find and replace its dwindling reserves. Shell’s Cognac platform in 1,025 feet of water in the Mississippi Canyon area became the most expensive project yet and “redefined the concept of deepwater” (p. 180). Cognac stretched the limits of platform design and spurred new developments in fabrication, underwater installations, and subsea gathering systems. Perhaps one of the defining characteristic of Shell E&P, as examined in Priest’s book, was its ability to take the technology and lessons learned from one project and apply them to consecutive new ventures offshore. In 1988, Shell’s Bullwinkle, the last of the company’s colossal deepwater fixed platforms, consisted of one solid prefabricated platform structure, not three separate and more costly pieces like Cognac. When deepwater activity ventured out well beyond the reach of conventional fixed platforms, such as the new deepwater plays in the mid-1990s, Shell again pushed the limits of engineering by building a series of tension-leg platforms (TLPs) over a period of several years to develop its giant fields: Auger, Mars, Ram/Powell, Ursa, and Na Kika. The TLP concept, first used by Conoco in the North Sea in the mid-1980s, provided the best economical and technological means of producing hydrocarbons from several thousand feet below the Gulf surface. Priest argues that the deepwater and ultra-deepwater finds reestablished Shell’s position as a dominant offshore producer in the Gulf and “helped postpone the day of reckoning for U.S. oil production on its inevitable decline” (p. 264).
As a business history, the book examines the internal operations of a giant oil firm and shows how geophysical and engineering departments influenced management strategy and corporate planning over the long term. The experiences of Shell Oil in the “new vista” of the deepwater and ultra-deepwater Gulf of Mexico illustrates the financial necessity for cost-cutting and the creation of “alliances” (p. 256) with other oil majors and contractors to spread the enormous financial risk, and potential rewards, associated with exploring for and producing offshore oil and gas resources at greater depths. Priest describes the innovative risk-sharing agreement struck among Shell, BP, J. Ray McDermott construction firm, and other contractors to build the Mars TLP under budget and ahead of schedule. Shell effectively utilized this new project management strategy for subsequent TLP projects, and with great success. A common criticism of corporate histories is that these works tend to glorify the accomplishments of the individual firms and managers in the story. Priest tries to avoid these pitfalls by pointing out Shell’s blunders, such as the company’s missed opportunities in Alaska and the 1970 Bay Marchand blowout and subsequent oil spill off the coast of Louisiana. In the wake of the BP Deepwater Horizon disaster, at a time of great confusion and uncertainty, The Offshore Imperative provides a valuable perspective on the trials and tribulations of the offshore oil and gas industry, and the environment in which it operates.
Shell Oil’s success in the offshore industry can be attributed to its ability to adapt to the multitude of changes in business practices, energy policies, exploration techniques, the global economy, and the natural environment. One of the author’s greatest insights and contributions to energy history is the way in which he brings out the human side of one of America’s major oil companies. Competition, management, oil prices, regulation, technology, and the race against domestic depletion were important elements in the evolution of America’s offshore oil and gas industry. But, as the author highlights, it was people at Shell, like Chuck Stuart, John Bookout, and Mike Forrest to name a few, who advanced the technologies, made the discoveries, created the opportunities, and developed the business strategies for finding hydrocarbons in America’s great oil frontier.
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Jason Theriot. Review of Priest, Tyler, The Offshore Imperative: Shell Oil's Search for Petroleum in Postwar America.
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