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Part of my job as a consultant is to field questions from fund managers about oil and gas exploration. Three themes have emerged rather insistently in the past few months, all of them related to E&P innovation.

Disruptive exploration technology

There is none. Low frequency passive seismic "direct indicator of hydrocarbons" is a fraud. Booking new offshore reserves on aerial magnetic surveys is another fraud. 4D broadband seafloor cables are a nice idea, currently in development, but no substitute for traditional reservoir modelling based on logged rock properties, petrophysical core analysis, observed production and so-called science wells that drill deep enough to see the whole column of basement, water contact, source, trap and seal. Nothing beats wireline well data. Initial drill stem tests mean nothing.

Innovative minnows are beating the majors

Nope. Small E&P companies are financially and intellectually impoverished compared to the integrated majors. Take Shell (NYSE:RDS.A) for instance. The company recently appointed another three scientists to its roster of R&D experts.

Dirk Smit, VP of Exploration Technologies, will be Chief Scientist for Geophysics. Dirk received his Ph.D. in physics from the University of Utrecht in The Netherlands. Before he joined Shell in 1992, he taught on the faculty of the University of California, Berkeley. Dirk has worked as Chief Geophysicist for Shell U.K. and as Technology Manager for Global Exploration. He was awarded the EAGE Ludwig Mintrop Award in Geophysics in 2002. Outside Shell, Dirk is a Visiting Scientist at MIT and holds a Visiting Professorship in Geoscience at the Chinese University of Petroleum in Beijing. He served as a member of the U.S. National Research Council on Solid Earth Observations from 2004 - 2007 and is a member of The Netherlands’ National Foundation for Fundamental Research on Matter and of the Physics branch of the Netherlands Organisation for Scientific Research.

John Karanikas, Chief Subsurface Engineer in Unconventional Oil, will be Chief Scientist for Reservoir Engineering. After graduating with a Ph.D. in physics from Ohio State University, John joined Shell in 1991 and has worked as a research physicist and a reservoir engineer at Shell’s Bellaire Technology Center in Houston, Texas. He drove the development a thermal recovery method for unconventional oil, including oil shale and heavy oil, in which he holds over 70 patents.

Vianney Koelman, Team Leader of In-Well Technology, will be Chief Scientist for Petrophysics. He earned a Ph.D. in engineering sciences from Eindhoven University of Technology in The Netherlands. In addition to heading Petrophysics for Europe and Africa, Vianney has held research and operational positions in The Netherlands, the U.K., Nigeria, Oman and the U.S., where he is currently stationed. From Houston, Vianney leads R&D projects on technologies enabling effective well and reservoir surveillance.

Cheap desktop E&P software

All three major software vendors - Landmark, Schlumberger (NYSE:SLB) and SMT Kingdom - are trumpeting cheap Windows based "enterprise solutions" for seismic interpretation and well data correlation. None of them work as advertised. None of them replace specialized third party software used for petrophysics, paleontology, legacy well studies, VSP and synthetic time-depth modelling, AVO inversions, massively large 3D subsurface volumes, or large data networks with multiple users sharing project resources. Auto back-ups on Windows? A disaster waiting to happen.

We've been involved in a testing program at a big independent that wants to scrap its portfolio of costly software licenses in favor of an "enterprise solution" from a single vendor. If they go forward with the idea, it will kill exploration stone dead, take months to migrate and convert data to a new "enterprise" platform, with no guarantee that any of their geoscientists will be able to recover and rebuild years of work done on stable, proven Unix software.

The minute you hear someone talk about innovation in oil and gas exploration, run like hell.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Oil and Gas Exploration Innovations: Mostly Hot Air