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Page added on February 12, 2017

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Oil and gas discoveries dry up to lowest total for 60 years

Geology

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.

FT



19 Comments on "Oil and gas discoveries dry up to lowest total for 60 years"

  1. Cloggie on Sun, 12th Feb 2017 3:17 pm 

    Just watched on Dutch television a VPRO documentary about the US shale industry, mostly concentrated in Texas:

    http://www.vpro.nl/programmas/tegenlicht/kijk/afleveringen/2016-2017/schaliecowboys.html

    (Usually the docu will appear online in a couple of days. Will post it if I remember it.)

    The mood of the shale producers is extremely upbeat. They are confident that they can make the US energy independent. They have made vast increases in production efficiency and cost lowering and now even export natural gas to Kuwait. Some companies can get productive in 8 days, starting from scratch.

    They are already looking forward to drilling under the Saudi oilfields once these have dried up.

    Their message: there is worldwide for decades worth of oil and gas to be acquired via shale that can service the usual supply patterns and I tend to believe them.

    A few years ago I believed the assessment of the likes of Heinberg that the whole shale business was merely a delay of execution of the oil age by perhaps a decade or so. That’s probably not true and folks who are around 60 today probably won’t experience the end of the oil age.

    The VPRO documentary makers, who are like most Dutch (including me) very much into renewable energy, openly began to worry about the short and mid term prospects of renewable energy, because of continued low oil and gas prices.

  2. Cloggie on Sun, 12th Feb 2017 3:20 pm 

    I now see that the VPRO uploaded the documentary on their own site (link in my previous post). Can someone please inform me if they stream abroad.

    The documentary is mostly Americans talking with some short Dutch comments in between.

    I would be highly disappointed if Rockman is not somewhere to be seen, or at least one of his colleagues.

  3. Cloggie on Sun, 12th Feb 2017 3:29 pm 

    Question to Rockman: the documentary claims that Nick Steinsberger was the one who by the end of the nineties discovered crucial elements of the shale procedure for Mitchell Energy (“slick water fracking”). I thought you once told that the methodology was much older, like 40 years or so.

  4. penury on Sun, 12th Feb 2017 4:44 pm 

    Perhaps, the best areas were developed earliest? The estimate of 300 m barrels is a mis-print?

  5. Midnight Oil on Sun, 12th Feb 2017 4:55 pm 

    ..no need for concern…we have extra supplies of nuclear charges that can be detonated underground to “free” up those trapped hydrocarbons locked out of our reach.
    The Russians already have and so it can be done.
    Of course, radiation may be a problem…
    Trump will fix that….

  6. Boat on Sun, 12th Feb 2017 5:49 pm 

    Clog,

    Tech in oil is an ongoing process. A smarter question is why in the last three years have wells gained so much productivity. Canada has experienced the same type of production gains.
    Not only do producers get their investment back faster but total production is also on the rise. Google new fracking tech.

  7. rockman on Mon, 13th Feb 2017 4:48 am 

    Cloggie – First, “The mood of the shale producers is extremely upbeat.” Those are publicly traded companies and will always be upbeat even to their last dying breath. LOL.

    Yes, in general frac’ng was developed more then a half century ago. And like every technology gets tweaked as time goes by. Slick water frac’ng was one such a tweak. But not a game changer by any means. In fact we learned it was not a better way to go in some situations. There has been 3 major tech developments in the last 40 years: Deep Water drilling, 3d seismic and horizontal drilling. And hz drilling is the most recent but still 25 years old.

    “…lowest total for 60 years”. Well, da! LOL. As I’ve explained many times 40 years ago when the Rockman started in the oil patch we were well aware of the coming global PO…the “reserve replacement problem”. And what was the problem: “lowest total for 60 years”. We were the ones struggling with finding a sufficient number of new fields, right? How could we not be aware many decades ago of the PO path we were on? You kids are way late to the f*cking party. LOL.

    “I would be highly disappointed if Rockman is not somewhere to be seen…” Working for a private company and subject to confidentiality agreements no one sees or hears the Rockman publicly. I can’t publish reports of the new horizontal drilling application I developed like I did over 20 years ago when I was with a pubco. Going to take that knowledge to the grave with me. LOL.

    I’ll check now and see if I know any of those folks.

  8. rockman on Mon, 13th Feb 2017 5:40 am 

    Cloggie – Watched the video. A few pertinent facts mixed in with big piles of bullshit, misrepresentations and outright falsehoods. Too much crap to hit individually. In general I would say it damaged your understanding of the situation here the it helped.

    BTW: “They are already looking forward to drilling under the Saudi oilfields once these have dried up.” 100% bullshit. The deeper sections were drilled decades ago. In general the ME oil fields are relatively shallow.

  9. Cloggie on Mon, 13th Feb 2017 5:59 am 

    Thanks Rockman, you made my day. So there is hope for renewable energy after all and I can keep promoting it.lol

  10. yoananda on Mon, 13th Feb 2017 6:08 am 

    @Rockman
    I often read your comments with great interrest but still…

    I’m wondering about shale&fracking for month and cannot make my mind about it.
    Revolution? bubble? ponzi? US only?
    Too many contradictory informations on it.

    You says you were aware of PO deades ago.
    To you best knowledge can you tell if and when it will happen?
    Do we already hit the wall (production been up in barrels does not mean it’s up in BTU!)?
    Will Trump policies change anything?

    How can we tell for sure when PO happens (I mean not by looking at production volume but rather by looking at some yet to be defined “symptoms”)

    Sorry if you already responded and I missed it.

  11. Jerry McManus on Mon, 13th Feb 2017 11:10 am 

    The Rockman tells it like it is.

    My question, for anyone who is interested, how much of the slowdown is down to a lack of upstream E & P investment?

    Last I heard the usual boom and bust cycle was at much in play here as anything else.

    1. High prices prompt huge E & P investments
    2. All that new oil briefly overwhelms demand
    3. Prices crash and the tide goes out on the oil patch
    4. Stranded naked swimmers get gobbled up for pennies on the dollar
    5. Demand catches up and prices soar again

    Rinse and repeat

    Don’t get me wrong, I also know that folks are getting one helluva less bang for their E & P bucks than they used to, after all, no one is making the gooey black stuff anymore and it I personally believe it is in fact getting harder to find.

    Just trying to tease a little signal out of the noise…

  12. Rockman on Mon, 13th Feb 2017 11:17 am 

    y – First, “To you best knowledge can you tell if and when it will happen?” Two answers: A) Don’t know and more important, don’t care; B) It’s been happening big time for many years now.

    Clarifying: if you haven’t heard my rant before it’s all about the POD and not a PO date. That’s the Peal Oil Dynamic. Some don’t like the POD because they feel it’s too inclusive since it weighs multiple factors. Unlike foolishly thinking a relatively unimportant metric like the date of global peak oil is THE critical single factor.

    Nothing magical happens on that GPO date: we could have 400 rigs drilling or 2,400. Oil could be $100/bbl or $50/bbl…like it is today. And we could be at GPO today…but it could be decades before we can know for sure. Just like how everyone came very close to being wrong about the US reaching PO over 4 decades ago.

    Some folks have fantasies about the great global Armageddon we’ll encounter after we hit that all powerful GPO date. Good chance those Chicken Littles won’t feel the sky falling on that date. And if we have just reached GPO going forward in the short to medium term (a year to 5 or 10 years) we may simply continue experiencing the full range of a “GPO life” as we have for the last 15+ years or so.

    Or simply: The best of times…the worst of times. LOL.

  13. twocats on Mon, 13th Feb 2017 11:22 am 

    article: “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.”

    and by “structural shift” they mean – there’s not much conventional oil left to find so they are structurally shifting to onshore unconventional. It’s called peak oil.

  14. twocats on Mon, 13th Feb 2017 11:24 am 

    article “He warned that, with exploration opportunities more plentiful than the available capital, there would be fierce competition for investment.”

    now that is a grim comment. potential edit: “with hail-maries more plentiful than the available capital”

  15. Rockman on Mon, 13th Feb 2017 12:07 pm 

    Jerry – Great post. But a small “but”: “…folks are getting one helluva less bang for their E & P bucks than they used to, after all”. If I understand you correctly: lower oil prices will reduce oil patch profits on FUTURE projects? Historically just the opposite is true. Yes: recent high oil prices led to a drilling boom and production surge. But record high leasing and drilling cost accompanied those results. So even without the price collapse profit margins were HISTORICALLY slim. And now add a huge debt load and the current LOWER oil price much of that smallish PM has disappeared. And notice I said lower prices…not low prices. The current oil price is still significantly higher then it was in 2005. And did you hear much about the oil patch loosing money and dying back when oil was $35/bbl? Because it wasn’t: when oil was $35/bbl we only drilled projects that made economic sense at that price. And since there was no “feeding frenzy” like that $100+/bbl brought on during the shale boom we didn’t borrow hundreds of $BILLIONS to capitalize on those high prices as quickly as possible.

    Same old story: one of the highest profit margin the Rockman created was drilling for NG back in the mid 80’s when prices fell BELOW $1/MCF. With such low prices drill costs plummeted. I was drilling/completing wells for $60k then that would cost $250k today even with the recent price declines. And borrow unsecured money to drill back then? LMFAO. The program was financed 100% by private investors. And why the hell would they do that with NG prices in the toilet? Because I was applying seismic technology (much of which I didn’t have to pay upfront for because of the bust) that provided a very high success rate: competed 23 out of 25 wells. And if that weren’t the case: investors wouldn’t even take my phone call let alone write a check.

    But understand: a big profit margin…not a big increase in production.

    How good a profit margin? From my best field discovery (3 wells) I initially sold my production for $0.90/MCF. And the total cost (leases, which were free due to the bust, and drilling/completion/pipeline) was $0.12/MCF.

    And that, my friend, is how you make obscene profits in the patch. Biggest personal income in my first 15 years working in the oil patch. LOL.

  16. yoananda on Mon, 13th Feb 2017 12:13 pm 

    @Rockman
    ok, lets put aside GPO.
    I have to admit I missed the point of POD.
    So…
    How do you define POD? what is non-POD?

  17. Rockman on Mon, 13th Feb 2017 12:25 pm 

    Kitty – “…and the structural shift in the industry towards onshore shale…”. They completely lost me there: with the rig count dropping from 1,800+ to around 500 (with most dropping out of the unconventional plays) this is a shift TOWARDS the shales??? Only in the Bizarro World. LOL.

    And “…with exploration opportunities more plentiful than the available capital…” Been trying to talk folks into investing in drilling for more then 40 years. And there was not one f*cking day when there were a lot more “exploration opportunities” then there was capital available. Apparently this writer never spent 60 hours a week for 6 months trying to talk someone into drilling one stinking well. LOL. Hell, the Rockman will drill his next hz oil well in a nearly deleted 70 year old field. And still a good investment at current oil prices. And it took the Rockman 15 years to talk someone into pay for the effort. In fact had secured the drilling rights in this same field ten years ago but couldn’t raise the capex.

  18. Rockman on Mon, 13th Feb 2017 1:48 pm 

    Y – What the f*ck is the POD? Fair question. LOL. Maybe the clearest way to describe some aspects of the dynamics.

    Aspect A: high oil prices cause a drilling boom and production surge. Increase in the public’s concern over energy availability. Oil export embargoes/sanctions. Hundreds of new companies start ups. Lots of new high paying jobs. Increased interest/investment in alternative energy infrastructure. Strong focus on increased fuel efficiency and conservation. Stock valuations of companies shoot up. Significant increase in landowner, local and national govt revenue from fossil fuel royalties/taxes. Expansion of fossil fuel production and transportation infrastructure. Huge increases in credit lines leading to mucho borrowing. Relative political stability in oil exporting regions.

    Aspect B: collapse of oil prices result in drastic declines in drilling activity, credit lines and stock valuations of the pubcos. Oil export embargoes/sanctions. Disappeance of the public’s concern over energy availability. Hundreds of companies becoming insolvent and many disappearing forever. Massive job loss. Reduction in salaries. Significant decrease in landowner, local and national govt revenue from fossil fuel royalties/taxes. Decreased interest/investment in alternative energy infrastructure. Declining focus on increased fuel efficiency and conservation. Increasing political instability in oil exporting regions.

    There’s some more but I think that clarifies the POD. And obviously the POD is a coin with two sides. Two opposite sides. And note: there is no DATE on that coin. If it did it might be 2017. Or at one time it might have been 2007. Or it might eventually be 2027…or 2037. The POD is not about the date of global peak oil. Its basis is the interactions within and between societal elements over the dependence on fossil fuels, who controls them and who can afford them as we deplete those finite resources. In that sense the POD has been a significant part of the world starting at least 4 decades ago when oil prices increased to $115/bbl (inflation adjusted), US drilling surge to 4,500+ rigs, oil export embargoes with subsequent panic by fossil fuel consumers, huge increase in the valuations of oil companies, many new high paying new jobs, increased concern of fuel efficiency, heightened military activity/conflicts in oil producing regions, etc.

    And then in less then 10 years a complete 180° reversal in most of those aspects. IOW the coin flipped.

    Yes, the POD is fairly all encompassing. Just like life. Life that has become almost fully dependent on fossil fuels. And the POD was alive and well decades ago even if few in the public was aware of the situation. And the POD will persist for many decades into the future.

    And it has never and will never have a f*cking thing to do with a date on a calendar. LOL.

  19. Outcast_Searcher on Mon, 13th Feb 2017 1:51 pm 

    And in X years when the consequence of that is rising oil prices, then the oil industry will do more E&P and those numbers will rise.

    Why should anyone be surprised that this is happening after 2+ years of low oil prices (relative to the past decade)?

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