Poor drilling returns from farm-in deals, report claims

A report by Westwood Global Energy Group and partner JSI Services suggests a slow-down in companies buying into exploration wells through farm-ins.

Offshore staff

ABERDEEN, UK – A report by Westwood Global Energy Group and partner JSI Services suggests a slow-down in companies buying into exploration wells through farm-ins.

The report covers the 2007-2016 period, during which 937 offshore and 835 onshore deals were announced.

Among the findings were:

  • Over the last 10 years, 1,134 wells were drilled on completed farm-outs with an average commercial discovery rate of 18% and farm-in finding costs of $3/boe.
  • This compares to an average success rate of 31% and finding cost of $1/boe for all exploration wells drilled in the period.
  • There was a gradual decline over the period in both the number and value of deals with 2016 being the low point, with fewer deals completed than in 2002, when the oil price was only $23/bbl.

The analysis is based on JSI’s database of farm-outs comprising 17 years of information and analysis, with new opportunities added each month.

JSI and Westwood are jointly offering online access to the database which is said to enable users to review the viability of potential deals and compare details such as deal costs.

Joe Staffurth, managing director of JSI Services, said: “Whilst the market may be at a low ebb, we still see considerable opportunities for E&P companies who are willing to take a longer-term outlook.

“Drilling and seismic costs have come down to the level where exploration economics look attractive. Deal terms are also low, so farming-in is cheap and companies can re-position their portfolios at low cost.

“There are still plenty of deals to be done, particularly for acreage with a healthy portfolio of prospects with low pre-drill risk profiles.”

Staffurth cautioned, however, that the success rate for wells drilled on prospects subject to a farm-in is below the normal exploration average, and advised companies to make smarter choices in the prospects they chose to buy into.

11/08/2017

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