Oil and gas companies are hunting the proverbial elephant again. Some of them are, at any rate.
Outside those muddled huddles of people who think hydrocarbon energy will simply vanish, a revival of big-field exploration is welcome news.
The world faces a continuous need for new oil and gas supplies. Under any realistic set of assumptions about demand, production from existing fields will decline naturally faster than overall consumption will fall. Yes, production keeps rising from continuous resources, such as shales, which rely little on discovery in the conventional sense.
But questions remain about how long that growth will last and how rapid it can remain.
New supply needed
More certain is the world’s need for more new oil and gas than unconventional resources will yield, net of depletion. Much of that incremental supply must be discovered.
Until lately, exploration had fallen from favor.
The oil market collapse that began in mid-2014 deprived the risky work of financial sustenance.
Yet even before then, many major oil and gas operators and large independent producers had become wary of exploration.
They were emphasizing capital discipline and cutting investment. Offshore work, especially, suffered a contraction savagely aggravated by the price slump.
And for investors backing the independents historically responsible for most wildcat wells, the attitude toward exploration went from cautious to sour.
All that—well, some of it—is changing.
A Wood Mackenzie analyst in February said exploratory success in 2018 showed discipline likely to continue in 2019. Andrew Latham, vice-president, global exploration, pointed to three “play-opening discoveries” and three giant finds last year.
The play-openers: the Ranger and Hammerhead oil discoveries on ExxonMobil’s Stabroek Block off Guyana and the Dorado oil find by Quadrant Energy and Carnarvon Petroleum in the Roebuck basin off Australia.
The giants: Novatek’s North Obskoye gas discovery off Russia, Eni’s Calypso gas strike off Cyprus, and Hammerhead.
This year, Latin America accounts for a third of the world’s large and giant prospects due drilling and the same proportion of potentially play-opening wells.
“Exceptional reservoirs in Brazil, Guyana, and Mexico will attract the most investment,” Latham said. He also expects “a resurgence in offshore exploration” in southern and western Africa.
This year began with four high-impact discoveries, noted analysts at Westwood in a February report: CNOOC’s Glengorm gas and condensate strike in the UK North Sea, two more strikes on the Stabroek license off Guyana—Haimara and Tilapia—and Total’s Brulpadda gas and condensate find off South Africa.
Resources attributed to the early-year discoveries are more than a fourth of 2018’s full-year total, the report said.
A further 76 high-impact wells were planned for 2019 or being drilled at the time the analysts wrote.
Late in March, another Westwood report pointed out that the first Guyana discovery, Liza in 2015, and last year’s Brulpadda strike had partners that farmed in to the licenses at premiums.
“These high-profile successes for the farmout model should catalyze a recovery in the global farmout market,” Westwood said.
Exploration would benefit from the consequent boost to investment. Outside North America, conventional exploration farmouts fell to a low of 57 in 2016 from 106 in 2014, according to Westwood. They rose to 61 in 2017 and 71 in 2018.
Farmin costs fell as activity fell and, like deal activity, have only partly recovered. The cost to access an offshore drilling opportunity in 2018 was about half its level of 2014 because of lower promotes and well costs.
“Higher oil prices, cheaper deal terms, and recent large farmin discoveries are all positives for the farmout market,” the firm said.
Fewer participants
An important feature of the exploratory revival is a diminished number of participants. Fewer companies are drilling fewer wells, said Wood Mackenzie’s Latham, who expects few newcomers.
“If anything, the current corporate landscape will continue to narrow,” he said.
Bob Tippee | Editor
Bob Tippee has been chief editor of Oil & Gas Journal since January 1999 and a member of the Journal staff since October 1977. Before joining the magazine, he worked as a reporter at the Tulsa World and served for four years as an officer in the US Air Force. A native of St. Louis, he holds a degree in journalism from the University of Tulsa.