Sorry to go on about it but Exploration performance
has been poor for some years.
This is a rather superficial review of merely the
latest poor year, 2016, focussed on the plummeting of discovered volumes to a
historic low. But this narrow beam of light has allowed some to claim that this
was simply the result of a dramatic fall in exploration spend…..
To really understand what has been going on, a more
sophisticated, nuanced review is needed and for this I refer you to Richmond
Energy Partner’s annual State of Exploration reports, the most recent of which
was released in May 2016.
Where to start: commercial volumes fell to an all-time
low, commercial discovery rates were as low as 1 in 12, Finding costs rose, much
geology need $60/bbl to be economic etc etc. I look forward to their May 2017
report, I do not expect a dramatic improvement.
Let me be clear – in my view, Exploration has been,
and is, failing as a Business!
Are there any root causes? Let me try a few….
1. We
became hooked on Deep Water but this has run its course; discovery volumes and
success rates there have collapsed – we need to find new, different, frontiers.
2. We
have also become hooked on huge 3D surveys and forgotten or mislaid the
fundamentals of petroleum exploration.
3. Geoscience
interpretation skills have weakened.
4. There
are too many ‘minnow’ companies, not underpinned by strong technical skills and
knowledge. And with little financial muscle.
5. Many
company boards are not equipped to run Exploration as a Business.
How can this be turned around?
Firstly, we need to recognise that:
Petroleum Geoscience and Seismic Interpretation are not the same thing!
Excellent Petroleum Geoscience integrates stratigraphy, sedimentology,
structural geology, geochemistry, petroleum systems analysis, non-seismic
geophysics and of course seismic interpretation. Big companies – the Majors and
the bigger E&Ps - should still be able to do this. If a company is
determined to stay ‘lean’, then it will need to outsource – trickier than
having most of what you need in-house but good people are out there!
And…..
Senior Management/Boards need to (be able to) execute a process of
“Quality through Choice”, a proven methodology for improving exploration
success rates, meeting targets, whilst staying within budget.
Secondly, 'pure play’ Explorers have two further problems:
As companies they
have only 'worked' when oil prices were rising so much that equity holders were
willing to pump more money in.
And…..
Where do they go
- new Frontiers or existing provinces?
It would be easier to
raise money for a spittoon manufacturer than to raise equity funding for a ‘pure’
exploration company. So this implies a viable company needs to include
production to yield the cash flow for funding exploration.
Where do I have in mind?
Well, North Africa, the Caribbean, East
Africa are certainly worthy of consideration. West Africa probably not.
Possibly the North Sea though we would
have to figure out how to make currently marginal fields economic…..
Unconventionals are a possible theme:
could a European regional company be built that is focussed on the Kimmeridge
Clay and/or the Bazenhov and/or the Domanik?
