Oil Lies, Damn Lies & Statistics Why We Are Confused About Oil "Facts"

• Author: James M. Day
• Pages: 12

Professor Day teaches Oil and Gas Law, The Regulation of Energy, and International Petroleum Transactions. He is a graduate of the Washington College of Law. This article is excerpted from his current book to be released, OIL Facts, Lies & Unanswered Questions.
@Lost in Translation
Mark Twain attributed his often quoted quip, "There are three kinds of lies: lies, damn lies, and statistics," to Benjamin Disraeli. The British prime minister and American literary lion were masters of a different English, nevertheless their clarity was understood on both sides of the Atlantic. Unlike the words of Twain or Disraeli, writing is often the root of confusion and misunderstanding, and the complex world of petroleum law is a prime example of that confusion and misunderstanding. George Ives, Jr., publisher of Pipeline and Gas Technology, claimed in a September 2005 editorial that petroleum engineers' technical papers "are well-written, with logical conclusions."¹ He begs to ask the question, however, "Can engineers can write nontechnical papers or communicate with those outside engineering?" Ives noted that the magazine's contributing editor, Doyle Stevens, placed the blame on university professors who insist that engineering students take more technical courses and forgo classes aimed at developing writing skills.² Yet, that is only a part of the problem.
Two decades ago, Harvard's Nobel laureate in economics, Wassily Leontif, wrote of his concern about the isolation of academic economists.³ MIT Professor Emeritus Morris A. Adelman opined in his seminal work, The Economics of Petroleum Supply, "[M]any of the questions require dialogue and even co-operation between economists and engineers."⁴ Recent papers from academia have proffered collaboration between the sciences and economics because of the preeminence of economic thinking in our capitalistic society. All made excellent cases for an interdisciplinary study of the world's petroleum reserves, a subject of bitter debate today. But (a big BUT), interdiscipline studies of petroleum issues must include major contributions from petroleum industry technical and financial professionals and other professions, including lawyers.
Although the U.S. government has shied away from integrated discipline studies, except to pick and choose opinions for political reasons, business depends on interdiscipline analysis for major investment decisions. An excellent petroleum industry example is the multi-billion dollar production sharing contracts with foreign nations. Such investments involve a team of geologists and geophysicists (eternal optimists at finding oil), petroleum engineers (perpetual pessimists, who must produce the oil based on the geologists and geophysicists' "discoveries"), bankers (money men), accountants and tax specialists (number crunchers), economists (risk managers), businessmen and politicians (political and business risks), environ- mentalists and anthropologists (pollution and cultural issues), lawyers (to write understandable contracts), and the company official who makes the final decisions and keeps the mélange working as a team. The success of any major business venture or meaningful study depends upon analysis by diverse professions that can communicate with each other. Without the views of the overlapping fields, neither governments nor industry can solve the complex technical and economic issues.
@Sources, Bias & Fudge Factors
How reliable is the information in newspapers, magazines and books and on television? According to Lenburg's Guide to Research, "In the mainstream media today, assumptions, inferences, opinions, and editorializing are rampant and confused with fact."⁵ As for Internet research, it is a swampland mired with misinformation and propaganda. Self-styled documentaries, exposés and news compound the lack of verifiable data with quotes from "experts." One must look with a jaundiced eye at quotes from amorphous "industry experts" and "government officials" and statements like "intellectuals believe," the latter often connoting the unemployed. No article can be considered reliable unless the reader is made aware of the writer's and source's industry, government, political, and environmental affiliation or bias.
Typically, the media adds anecdotal evidence of an "energy crisis" with comments from an average American, like an unemployed single mother with two children, about the price of gasoline hitting $3.00 a gallon. After she complains about price gouging by "oil companies and the Arabs" and sips her bottle of Evian water, the newsman adds that the price of gasoline has soared 50 percent in the last two years. The commentator generally fails to mention whether two years ago OPEC had raised production to lower prices, the nation was suffering from an economic slowdown, or it was discount day at his Chevron station. Perhaps he didn't mention her Evian water cost $10.50 per gallon because Evian spells NAIVE backwards. She was included in the story to gain sympathy, and the reader is not told the causes of gasoline price increases. Except for hard news, newspapers and magazines must be vetted for serious study, reputable scholarly journals being a possible exception.
Professor Adelman also warned: "The student of petroleum economics must take as his guiding motto: Beware of averages."⁶ Averages can be misleading unless a supporting framework is provided. The average American's income includes Microsoft's Bill Gates and the young man who cooks your Big Mac at McDonald's. If Company A had an oil production increase of 20 percent and Company B's only increased 15 percent, it does not necessarily mean A...