Calgary consultant disputes book that predicts 'coming Saudi oil shock'

Calgary — The most talked about book in the oil business this year, Twilight in the Desert, now faces some tough competition from a report out of Calgary titled Another Day in the Desert, which forcefully challenges the dire conclusions of Twilight.

Another Day is the most widely read piece of research ever put out by independent Calgary energy consultancy Ross Smith Energy Group Ltd. and the paper supports what many technical minds had suspected: That Twilight's attempt to assess the capacity of Saudi Arabia's oil reservoirs is flawed.

"The book posits a crisis where in our opinion none exists," wrote Jim Jarrell, president of Ross Smith and author of Another Day. "We believe Twilight attempts to turn benign technical matters into crisis-level evidence."

Mr. Jarrell, a leading petroleum engineer in Calgary, first heard about Twilight last Christmas and rushed to order a copy on-line, giddy about a book that promised to dissect Saudi Arabia's vast oil reservoirs by piecing together evidence from technical papers.

"It's a brilliant concept for a book," said Mr. Jarrell, who prior to Ross Smith was a partner at Gilbert Lausten Jung Associates Ltd., the top reservoir engineering firm in Calgary.

When the tome arrived in June, Mr. Jarrell devoured the controversial book in a weekend but was left disappointed.

The writer, Texas investment banker Matthew Simmons, had concluded that Saudi's oil reservoirs were unlikely to be able to increase output significantly and in fact there was a risk of a production collapse — a "coming Saudi oil shock."

The conclusion has received wide media attention and Mr. Simmons is often dubbed an "oil guru" or "oil industry expert" in headlines. But such stories often only tell one side of the debate, where Mr. Simmons makes the headlines and the counterargument is given far less credence.

"There's been precious little balance," Mr. Jarrell said.

He reviewed several of the key papers from the Society of Petroleum Engineers that Mr. Simmons relied on heavily to come to his conclusions but Mr. Jarrell arrived at a very different finding.

"I got a comfortable feeling that [Saudi Arabia has] an unprecedented record of reservoir operations and management," he said. In his paper, he concluded that Saudi reserves are likely not overstated, that production is unlikely to collapse and that the exploration potential of the kingdom is probably better than anywhere else on Earth.

Mr. Simmons has a Harvard MBA and founded Simmons & Co. in 1974 in Houston to serve the oil business. After the oil price collapse of the early 1980s, he was disillusioned by the many wild forecasts made during the boom that had proved false and overstated. Over the decade, he gave various talks and became something of a "petroleum data nut," he said in an interview from his Houston home.

"I got very comfortable telling people bad news they didn't want to hear."

By early 2003, after a one-week trip to Saudi Arabia, Mr. Simmons began contemplating a book on the kingdom. After it was published, he was ready for "one scornful attack after another about how this was the dumbest thing [people] ever heard of."

But they didn't come, he said, and listed a series of examples of senior engineers who loved the book.

Asked about Mr. Jarrell's argument that his technical work was inadequate, Mr. Simmons called it an "interesting charge" and related a story about being approached by someone at a recent luncheon.

"He said: 'I'm the dean of the petroleum department at the University of Texas and I've got to tell you your book was stunning. I think it's the best textbook anybody's ever done on reservoir mechanics.' ..... I've had too many responses like that to have any doubt."

Mr. Simmons said Mr. Jarrell puts too much faith in things the Saudis have said about their oil fields, suggesting that the odds of a collapse are far higher than the kingdom's assertion that it can notably boost production rates.

But the debate remains unsettled.

Mr. Simmons' belief in his work is unwavering and Ross Smith Energy Group insists he's out of his depth, issuing conclusions based on technical papers that Mr. Jarrell called a "slog" even for actual engineers.

"It sure has generated a lot of discussion," Mr. Jarrell said.