LONDON – Wood Mackenzie predicts a 15% increase in conventional exploration spending this year to about $85 billion.
According to Andrew Latham, VP exploration service, the industry is investing heavily because returns are good.
“Over the past few years,” he said, “there has been typically a 15% rate of return on oil prices of $80/bbl, rising to 18% for a $100/bbl price. These are as high returns for exploration as Wood Mackenzie has ever seen.”
In the past two to three years, the volumes of the new “conventional” finds have been getting bigger, he added, and results so far in 2012 suggest this year could be the best ever, with a roughly 50/50 split between gas and oil.
Latham, speaking at a briefing in London, said many of the key trends Wood Mackenzie sees “are as good as they’ve ever been. That includes the returns of the majors to high-impact exploration.”
The main source of new oil finds continues to be the presalt plays in the deepwater Santos basin offshore Brazil. The roughly 30 wells drilled to date in this region have proven 30 Bboe, he said. By comparison, it has taken around 900 wells over the past decade to discover similar volumes in the Gulf of Mexico, and around 700 wells offshore Australia.
East Africa and the eastern Mediterranean Sea have provided most of the major new gas finds.
“Deepwater is the key to this success. The total volume being found in deepwater is now more than the yield from onshore exploration or from shelf drilling. And deepwater is typically more oil. Fewer wells are drilled in deepwater, but those drilled add multiples to reserves, and that’s the reason why deepwater remains so attractive.”
Elsewhere, Wood Mackenzie sees 10-15 exploration wells being drilled annually in Arctic regions, but at much higher cost.
“There has been a lot of success recently in the Norwegian far north, and we expect more drilling offshore Greenland in a year or two. Wells are about to be drilled offshore Alaska and northern Canada, and in the Russian Barents Sea and Kara Sea.”
Latham says that independents have opened plays off nine previously untapped countries. In the past, the majors would have driven these programs, but most of the Top 10 oil companies have collectively experienced a decade of relatively flat growth, he said, not replacing lost production with significant new discoveries. That should change going forward to 2020, he claimed, as the majors commit more funds to exploration.
“As a group, they have posted an average increase in their global expenditure of 15%, similar to the rest of the industry. However, their spend per barrel of production has been lower than for many of the independents – around $3/bbl compared with $5/bbl. We predict the majors will increase their exploration spending to 20%/yr.”