Companies are putting a brake on exploration and large fields are harder to find
Discoveries of new oil and gasfields have dropped to a fresh 60-year low, as companies put a brake on exploration and large fields have become harder to find. There were only 174 oil and gas discoveries worldwide last year, compared to an average of 400-500 per year up until 2013, according to IHS Markit, the research group. The slowdown in exploration success shows that the world is likely to become increasingly reliant on “unconventional” resources such as US shale oil and gas to meet demand for energy in future decades. The typical time from discovery to production is five to seven years, so a shortfall in oil and gas discoveries now implies tighter supplies in the next decade. However, there are signs of a tentative upturn in conventional exploration this year, with some companies including Statoil of Norway planning to step up drilling activity. Discoveries hit a six-decade low in 2015, and then dropped again last year to about 8.2bn barrels equivalent of oil and gas. The slowdown reflects both the cyclical cuts in exploration made by companies struggling to stay afloat after the drop in oil and gas prices since 2014, and the structural shift in the industry towards onshore shale and similar reserves, especially in North America. Most frontier exploration is now offshore, where a single well can cost $150m, and the success rate for “wildcat” wells has been about one in five.
Spending on exploration fell from $100bn in 2014 to $40bn last year, according to Wood Mackenzie, another research company. Chevron of the US cut its exploration budget from $3bn in 2015 to $1bn per year in 2016-17, and ConocoPhillips is pulling out of deep water exploration altogether. The discoveries of new fields compare to 190bn barrels equivalent of oil and gas that have been added to the estimated resource base of North America over the past 10 years, thanks to advances in technology that have made production possible from shale and other similarly challenging “tight” rocks. A shale well onshore can cost $4m-$10m and be brought into production in weeks, as opposed to five or more years for deepwater discoveries. Bob Fryklund of IHS Markit said: “We’re solving the problem through tight rocks.” However, Wood Mackenzie expects a modest upturn in exploration activity this year, forecasting that more than 500 wells will be drilled globally in 2017, compared with 430 in 2016. Wells planned by ExxonMobil in Guyana, Eni in Italy, Statoil in the Barents Sea, and in Mauritania by Kosmos Energy and its new partner BP were among those with high potential for making a discovery, it added.
Andrew Latham, head of global exploration research at Wood Mackenzie, said that lower daily rates for drilling rigs and other savings were allowing companies to achieve more for less money. “If you look at what they are spending, it looks very cautious. But if you look at the bang they are getting for their bucks, it is much more optimistic,” he said. He warned that, with exploration opportunities more plentiful than the available capital, there would be fierce competition for investment. “Countries that are overly harsh on their fiscal framework will not attract investment, because companies have choices.” The world’s two largest discoveries of the year were both in the US: Caelus Energy’s discovery at Smith Bay in shallow water off the north coast of Alaska, which could hold up to 4bn barrels of recoverable oil, and ConocoPhillips’ Willow discovery, which is also in Alaska but onshore, and is estimated to hold 300m barrels. Other large finds last year included discoveries of large offshore gasfields by Kosmos Energy in Senegal and Cobalt International Energy in Angola. In another sign of the challenges facing exploration today, most of the frontier discoveries in recent years have tended to open up smaller regions, rather than large new areas like the offshore fields of Brazil. The most recent giant basin to be opened up was the Zohr gasfield found in Egypt by Eni in 2015.
by: Ed Crooks in New York and Andrew Ward in London
