Grace - Oil: An Overview of the Petroleum Industry

Sixth Edition

Copyright 2007 by Gulf Publishing Company, Houston, Texas. This book was originally published as OilFrom Prospect to Pipeline in 1958 by Gulf Publishing Company.

All rights reserved.

No part of this publication may be reproduced or transmitted in any form without the prior written permission of the publisher.

Gulf Publishing Company

2 Greenway Plaza, Suite 1020

Houston, TX 77046

10987654321

Printed in the United States of America.

Printed on acid-free paper.

Library of Congress Cataloging-in-Publication Data

Grace, Robert.

Oil : an overview of the petroleum industry / Robert Grace.6th ed.

p. cm.

ISBN 1-933762-01-2 (978-1-933762-01-2 : alk. paper)

1. Petroleum industry and trade. 2. Petroleum industry and tradeUnited States. 3. Energy industries. 4. Energy industriesUnited States. I. Title.

HD9560.5.G615 2007

338.27282dc22

2006038253

This book has always been a short, comprehensive overview of the oil industry. Obviously, almost any subject touched on in this volume could be the subject of an entire book much lengthier than this one. But, I hope it does give the reader a basic understanding of the industry, how things work, the objectives and how they are accomplished. I also hope it will give the reader a sincere appreciation for the vast amount of expertise, engineering, science and technology required to put that gallon of gasoline in the tank that drives their car or heats their home.

It is an amazing industry! It stretches worldwide. It operates in the most hostile environments. Amazing tools have been developed that withstand unimaginable stresses. Holes which are more than five miles in depth are drilled to produce oil and gas. Oil is produced in ocean waters that are two miles in depth. From the wellhead to the automobile or airplane is a delicate balance of supply and demand. The energy industry deserves our highest respect and greatest honor. It keeps our cars running with the kids going to school and us going to work. Without it well, the consequences are too severe to consider. But, it is safe to say we would all be walking or riding bicycles or horses.

The first edition of this book was published in 1958. That is almost 50 years ago. I graduated from high school in 1959 and embarked on my odyssey in this industry a few years later.

My father was a roughneck on a drilling rig when I was born. I grew up in Oklahoma at a time when 85 percent of the local population made their living from the oil industry. So, basically, Ive been in the oil business all my life.

I never dreamed I would live to see the changes Ive seen in this business since the first edition was published. In the 1960s I was told by a Humble Oil (now Exxon) board member that oil would never be worth more than $3.15 per barrel! Since, it has soared to unimaginable multiples of that number!

The energy industry that I went into was the finest industry in the world. It had an infrastructure second to none! Then, oil and gas prices were deregulated in the early 1980s and the industry was basically destroyed. We lost at least one half million workers, never to return. Had it been the auto industry instead of the oil industry, the government would have intervened and rescued us. But, it was not to be. At one time, in the mid 1980s, the biggest employer of geologists in Houston was Yellow Cab!

We have seen the destruction of the domestic industry and the rise of the international industry. Energy prices after the early 1980s were unrealistically low. As a result, the United States became an energy glutton. The United States has become enslaved to the oil-exporting countries by its dependence on and insatiable appetite for energy.

For 20 years after the crash of 1981, no one wanted to be in the oil business. Bankers would run if someone wanted to borrow money for anything related to the energy business. The petroleum engineering schools were empty. None of the major companies were training people. Everyone was downsizing or simply selling out. I would never have dreamed in 1965 when I graduated from the University of Oklahoma that companies such as Amoco, Gulf and Mobil would simply disappear!

Now, the demand is challenging the supply and prices are volatile. The United States is addicted to energy. We consume much more energy per capita than any other country on the planet. Therefore, we are impacted the most by volatile supplies and prices! But, our infrastructure is gone! The citizenry believes that someone should be able to do something to enable us to maintain our addiction. But, we cant. The reality is that the domestic industry controls only a small fraction of the energy we consume. On the remainder, we are hostages to an ever more hostile world.

It is therefore vitally important that everyone in this country have a basic understanding of the energy industry. I hope this text will provide that basic understanding. This great country of ours cannot exist without an abundant supply of energy. It will be a great challenge for future generations to meet those needs.