Alberta Oil: Why do you say you still can’t predict the oil price after four decades in the industry?
Bob Dunbar: When I worked on strategic planning at Petro-Canada in the late 1980s, we used to talk to world experts to form our impression of the business environment. We were not able to do a very good job at forecasting prices. We do get people prepared to come out with views. I believe we will see some recovery. But experience tells me that if I’m planning projects, I want to make sure I look at a full range of possibilities.

AO: Is Paul Volcker, chief of President Barack Obama’s economic recovery advice team, right that mathematical models for economic or financial forecasting fail because they can’t predict people?
BD: I’m from a technical background as an engineer. But I have skepticism about technical models. I hear, for instance, the global circulation models for carbon dioxide emissions. I have a lot of skepticism about those because the complexity of the atmosphere is so great and our ability to model that is so limited. In my field, people develop the same kinds of models for particular oil reservoirs and still have difficulty forecasting their performance. Our ability to model technical things is very limited. How can we model human behavior that’s even more complicated?

AO: Is the current oil crash teaching industry and the financial community that same lesson all over again?
BD: One lesson is that we have to recognize the uncertainty that exists about the future economic environment. If somebody asks me what is the likelihood of either of my two oil sands scenarios [prolonged slump or moderate recovery] happening, I have to give them equal probability. It took a long time to recover from setbacks in the late 1970s and early- to mid-’80s.

AO: How will that lesson affect industry behavior?
BD: In the first years of the oil sands, the industry made investments in very uncertain economic environments. Cost is the key driver. If revenue is only all about the oil price, it’s beyond the industry’s control. We will see people make investments. The first plant, Great Canadian Oil Sands [now Suncor], had very poor economics for a decade before it turned around for the better. The Project Millennium expansion was announced at a time of low prices. Suncor had great courage to go ahead. We will see some decisions made like that.

AO: Can projects be adapted to survive unpredictable lean times – the way, for instance, Imperial Oil turned Cold Lake from a dead megaproject into a live operation in the 1980s by figuring out how to build it in small pieces?
BD: That’s always been something the oil industry has had to deal with. I’m not sure if a seismic shift is coming. The industry may be better now at dealing with uncertainty. There has been much experience. In the oil sands, SAGD is certainly amenable to the phased approach. But for integrated mining and upgrading projects, the issues are more difficult. Maybe Fort Hills can be scaled down to only a mine. Maybe Suncor’s Voyageur project can be done in capacity increments. The industry will be looking at creative solutions.