Article by a former employee of Shell Oil Co.
John,
I was reading some of your references to ‘strong men’ at the helm of Shell and the negative impacts they have had on the company.
In the States, the 1980′s were the decade of ‘Bookout’. This was when I worked for Shell.
At Shell USA John Bookout (right)was at the helm of the company from 1978 to 1986. He took the company down the road into heavy oil and the Belridge acquisition and moved away from a heavy emphasis on exploring for new reserves.
Oil declined in price steadily in the 1980′s, and by 1986 is was costing Shell more to produce the heavy oil than they could sell it for. And heavy oil was then a significant portion of Shell’s production.
Bookout also led the company down the road to teritiary recovery. This was an oil recovery scheme based upon the injection of massive amounts of carbon dioxide into older fields to strip residual oil from the rock that would not normally be recoverable. Normal pressure depletion production methods and water flooding typically leave about half the original oil in place in the reservoir as ‘unrecoverable oil’. Carbon dioxide flooding offered the hope of getting most of that residual oil out of the rock in which it was trapped. While the scheme can work under special circumstances, Shell leadership ‘en mass’ decided it could be applied on a massive scale to almost any reservoir and situation. This was not true of course.
These new recovery and exploitation strategies put Shell USA’s production department at odds with the exploration department as how best to invest corporate funds to secure future reserves. The infighting was vicious, with production dept. even refusing to provide engineering technical for exploration projects.
While oil production for the company slowly declined through the 1980′s revenues from oil sales plunged as the light oil to heavy oil production mix became dominated by the much lower priced heavy oil. The gamble on carbon dioxide proved to be a technical and financial failure for a host of technical reasons. Shell USA management thought they had outmaneuvered the rest of the domestic oil industry with the heavy investment in heavy oil and tertiary recovery and the untapped billions of barrels of oil that could be produced from these ‘unconventional sources’. It was a giant exercise in self-delusionment. The economics didn’t work out. Management had bet the future of the company on these technologies and lost.
Throughout the 1980′s Shell USA kept adding more and more in the way of reserves and production kept declining. Reserve additions and production rates were headed in the opposite directions. By the late 1980′s Shell USA was only barely profitable, and by 1990 was losing money. The first time in the history of the company. Shell had also gambled on the Arctic Ocean potential and lost as well. The decade of Bookout was Shell USA’s lost decade, where short-sighted management led the company down the road into serious financial trouble. Billions were invested with little or no return being realized on the investment.
By the early 1990′s the corporate strategy had shifted back to the tradition method of adding reserves – exploring for new reserves.
Royal Dutch Shell has had its problems with overly dominant leadership, and so has Shell Oil, USA.
Regards,
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