We recently posted the following question on LinkedIn:
How big (in US$) is the US oilfield cementing services market in 2019?
We got the idea from a recent “Planet Money” podcast where a bunch of people were asked to guess the weight of a very specific cow. The crowd guessed within 5% of the actual weight. Did some cheat and Google “weight of cow”? No doubt, but the intent of the experiment was to make your best guess and submit it.
Like the Planet Money team, who had already weighed the cow, we had already measured the US oilfield cementing market, but we wondered if asking a bunch of industry people to guess was a way to spot check our work or to get a quick and dirty estimate of other oilfield markets in the future.
Of the 14,000 people who looked at the post, 13 brave souls made a guess. Here are the guesses in the order in which they were submitted:
Doug Sheridan, author of EnergyPoint Research, thinks about things like this a lot and understands human behavior. Doug sent me a note, referencing work by Daniel Kahneman and Amos Tversky, who identified the impact of “anchoring” – if somebody early on guesses a number (let’s say “10”), then people guessing after that tend to guess in the neighborhood of “10” because they see that first, early guess.
The next guy is not likely to guess 1 or 100 because those numbers are just so different from the first anchoring number. Did a lot of people guess high because Doug’s immediate guess was $9B?
Several people showed their work. These were the ones I appreciated the most; I used to teach Fortran programming to incoming freshman engineers at Oklahoma State University, and it was imperative to “show your work”.
At our firm, we tend to do initial market size assessments by assuming some market metrics and then testing those metrics. In this case, several people made some form of the following calculation: Number of new wells drilled x dollars spent on cementing one well + an amount more for the remedial cementing market. That is a GREAT way to go, except you now have 3 variables to get right – new wells, dollars spent on each well, and remedial work.
Here’s a few things we observe from the 13 guesses:
As time goes by and despite each new person being able to see everyone else’s answer, there was no convergence on the average or mean.
There are just as many guesses ABOVE $6B as BELOW $6B… and $6B was just about the average.
For those guessing BELOW $6B, their average guess was ~$4B.
For those guessing ABOVE $6B, their average guess was not quite $10B.
We’ve been measuring the cementing market for decades. We have investments in three cementing companies. We review the cementing jobs on tens of thousands of US and Canadian wells every year.
Our answer for the US cementing services market in 2019? $3.8 billion.
One guy, Manitou Bishop (an A&M grad, of course), nailed it. Several got close.
I think this is what we can learn from this exercise:
Some guesses can be extremely close to the actual number, but how can you know which of the guesses to believe?
People in the oilfield are a hopeful lot and tend to see opportunities as far larger than they actually are.
Unlike a cow, which everyone has seen, guessing the size of something you HAVEN’T seen introduces a lot of uncertainty… probably too much uncertainty.