Page seven of this IHS presentation shows a graph of average discovery size over time: http://www.ihsenergy.com/news/presentations/seg_cairo.pdf

It was stable at ~250Mb from abotu 1955 to 1975 then fell quite sharply to roughly 50Mb (eyeballing the chart) by 1985, and has remained approximatly flat since. Interesting - does this suggest a cut back in exploration in the big Middle East producing countries after the oil shocks and demand crash may have been a significant factor as Mike Lynch suggests?

What is the % of the earth surface that has been explored anyway ? (neglecting the ultra deep, ultra cold, areas unlikely to hold significant reserves due to geologic history?)
If almost all of it has, KYAGB

"While geographic preferences based on corporate presence or long-standing relationships are often factors, it is quality reserves with quality fiscal terms that the companies are after; it is that objective that ultimately guides them in targeting assets and allocating investment dollars. Of total global oil and gas reserves, only about 14% are fully open for IOGC competition, where governments regulate the activities of oil and gas companies, but do not themselves participate in the exploitation of reserves (largely in the US and the UK). A further 17% of global oil and gas reserves are held by Russian companies, both privatized and public, where the degree of openness, the nature of IOGC access and the competitive environments and terms are still evolving and basically still unclear.

Only 11% of global reserves where NOCs are present and governments own the resources are open for IOGC to have equity access to reserves. By far the largest portion of global reserves, 58%, are held by governments and NOCs where IOGCs do not yet have equity access; in part of this portion, IOGCs can have some limited involvement through service contracts or technical service agreements, but they cannot have equity access to reserves. In spite of this, out of some $180bn in capex spent in the global E&P sector in 2002, $140bn was spent by publicly traded companies. The situation is only slightly different if one considers only natural gas, where Russia becomes more dominant, holding about 31% of the global reserve base. Reserves with full IOC equity access amount to some 10% of world reserves, and only 8% of world natural gas reserves where NOC are present are open to IOGCs. When it comes to the remaining 51% of global gas reserves, IOGCs have only limited access, through service contracts, but no equity access."
http://www.mees.com/postedarticles/oped/a47n26d01.htm



The last bit illustrates my point.



So why are you complaining about the "paucity of good exploration opportunities"?



If Russia is so open, what was Yukos all about then?



That's consistent with slow-down tactics.



IMO, the facts don't justify that statement.



Because it makes good economic sense to slow-down when the price is rising. Morgan Stanley and Goldman Sachs are hoarding oil (Source). If it makes sense for them, why wouldn't it make sense for the NOCs, who can hoard much more effectively simply by dragging their feet.



Catch up to what? The American lifestyle? It would make no sense to spend the last dregs of natural oil to build an oil-dependent infrastructure.

When they say 14% are fully open they are only speaking to places where there are no NOC's ....well of course the number is small but there are places such as Algeria and Libya and Egypt (and a plethora of others) which are fully open to foreign companies...the NOC's may compete with them or get back in rights but otherwise it is an open playing ground. The statement is quite misleading. When they speak about the amount of reserves held where foreign companies currently do not have access the statistical argument is abused given that much of those reserves are contained in Saudi Arabia.


simply having access to these areas isn't good enough since oil companies are not in business to find oil to provide to consumers...they are there to make profits (ie. good exploration opportunities). Although there are lots of opportunities in Iran for gas and to a much lesser extent oil the profitability is not necessarily there for most.....larger companies need to do these projects to replace their huge dwindling resource base and NOCs need to pursue them to provide guaranteed access to energy for their home countries...their economics are different.


well first off Yukos was a Russian oil company, very little different from Lukoil who have not had the same problems. Most see that Yukos President taking a political run at the heirarchy was a bad idea. Again Russia is open to foreign participation, it is just a difficult business environment.



and what is your point here? If it's that he's trying to chase out foreign oil companies ....perhaps he is but it would be political and likely literal suicide.



well of course you are entitled to your opinion but in the time I have been involved in the industry (last 30 or so years) the following has happened:
-Algeria opened to foreign participation, now foreign production is catching up to Sonatrach production
-Venezuela was opened to foreign participation after the mid-seventies nationalization
-Libya was opened to foreign participation
-Russia was opened to foreign participation
-Saudia Arabia opened the doors for participation in gas/condensate acreage
-Iran was opened to participation after the long period following ousting of the Shah and nationalization
-Mexico has begun offering service contracts to foreigners
indeed I would think you would be hard pressed to state many countries where they do not invite foreign participation.

Aha! We have a jargon problem. I presumed by "reserve growth" you were referring to the rate at which estimates of field sizes has grown. You are referring to the 'growth in reserves'.

It is important (I would argue) to avoid giving too much credence to short-term trends, up or down. The industry moves in very lumpy ways.
Mike Lynch

Thanks for the kind words, I will do my best to respond to queries, comments, etc., but there are a lot more of you than me (and I am supposed to be working on 2 articles, 2 reports, 3 proposals and a book).

I would say that the current market price is responding primarily to the huge amount of money that has come from pension funds and others buying commodity indices. There are others arguing for a security premium, i.e. response to low OPEC surplus capacity and the potential for more supply disruptions, but I think if that were true, the market would not be in contango.
Matt Simmons and I used to disagree in a friendly way, but it's no longer friendly. His book describes the Saudi geology fairly well, but does not explain why he thinks they will be unable to cope with what he sees as rising difficulties.
3) I just got the Hirsh report, haven't looked at it, but it seems to just be literature review.
4) Bear in mind that since about 1982, the IEA (among others) has repeatedly said that nearly all new oil production would have to come from the Middle East. OPEC stopped putting too much credibility in that some time ago. (I just got the CD from the Kuwaiti IEA/OPEC meeting discussing this; the presentations might be on the IEA website.) I think OPEC could produce a lot more, but that they won't have to produce the levels that IEA, EIA/DOE, and others say.
5) I think US gas production has probably peaked. It might increase in the future due to unconventional gas, which is increasing, and there is a big question market about deep shelf gas (shallow waters, deep drilling). You'll probably get a fair slug of LNG supply, but whether it's enough to take prices back to $3 (or when) I don't know.
Mike Lynch

Mr. Lynch,

Thanks again for contributing here.

I have a question about statements you've made about the rising cost of oil leading to an increase in URR (recoverable, not oil in the ground). I understand the idea that as the oil becomes worth more, it will be financially worthwhile to extract it. What I haven't seen is your thoughts on either EROEI or to put it in economic terms, how the costs of extraction will rise along with the cost of oil and therefore mitigate the increas in URR.

It would seem to me that the response would vary by the type of resource, and the nature of the effort involved. By example, I mean that the balance would be different for tar sands vs. light crude in hard-to-reach places (like deep sea sources).

How do you weigh the idea that the cost of extraction rises along with the cost of oil?

Thanks.

Where? In their filing cabinets?

If you don't physically hoard something it goes to the highest bidder. How much more elementary do we have to make it for people to start understanding how the non-conpiratorial world works.

Read the link dork.

Well, I am working on a full-time job unrelated to anything to do with oil depletion issues. I could care less how much of a hole you have gotten yourself into because of problems with a schedule.

Speaking for myself, I only want to find out how the world will dig itself out of the depletion hole.

close purge valve

Why isn't the profitability there?



So what's the problem then? Why are you and your colleagues so concerned about lack of opportunities in North America, the North Sea and Africa? You yourself said that there's lots of good opportunities in other countries, and they have never been more open to foreign participation.



No, my point is that he is making life hard for foreign oil companies by using passive-aggressive slow-down tactics. The idea is to undercut the U.S. -- wage economic warfare against it -- just not so overtly that you provoke a response. Yukos was a similar phenomenon. Putin could have just said: "We're nationalizing Yukos" and seized it, but he didn't. That would be too overt. He screwed the foreign oil companies, and the U.S. in particular but he took the roundabout route. The U.S. was looking to Yukos as a way to get a foothold in Russia, and the U.S. government at the highest levels was phoning Putin during the Yukos crisis, trying to get him to relent. But he didn't. He just pretended it was out of his hands, a tax issue he had no control over -- classic passive-aggressive tactics.



I don't think Chavez is afraid. The U.S. is a bluff. They can't fight all the Chavez's and Putins in the world at the same time. They've got too much on their plate, and they don't have the resources.

And anyway, why would it be in Chavez's interests to further the interests of people who are threatening to kill him? I'd definitely drag my feet in those circumstances. There's no reason for him to pump as fast as he can like a good capitalist; he hates capitalists.

numerous reasons that add up to F&D is too high to meet most companies hurdles....large companies have other drivers such as reserve replacement.



Again our job is not to find oil for you to consume....our job is to make profits for our shareholders.



well that's a fairly original view of what happened. Yukos was not an American company....the owner was one of the orginal Oligarchs or better put Russian mafioso who took particular advantage of the system when they were realing from the change form communism to semi-capitalism.
Regardless of how Putin did things I think pretty much everyone who is in the socio-political consulting game believes this was a politcal play...Putin was getting rid of someone who was challenging his political position...absolutely nothing more. By the way US companies have been in Russia for quite awhile...Conoco was involved in White Nights as an example.


well I think you missed my point from earlier posts....if he kicks out the foreigners (no foreign companies have threatened to kill him....only his own party and most of the unions in Venezuela) then he suddenly has to come up with about 3 times as much capital as he is currently sinking into oil and gas E&P just to keep production flat....that takes more money away from the populace and pretty much assures more dissent and a quick exit to live with his new friend and hero Fidel. And if he decides to cut production that means less money to be distributed amoungst everyone...less employment for local oil workers, who will spend less money in the shops....again Fidel better have his summer house ready for occupancy.

Mr. Lynch,
Thank you for corresponding with us.
The peak oilers appear to be morphing into a fascist movement whose immediate goals are authoritarian government and mass murder. What do you think about Colin Campbell publishing this material in the most recent ASPO newsletter:


http://www.peakoil.ie/newsletters/588

Bloody hell JD! How is that going to help?? What Campbell did was stupid, plain and simple. I was shocked too and he’s done ENORMOUS injustice to those who are trying to get people to wake up. I'm hoping it was just his attempt to shock people and get them to wake up. Bad choice. But Jesus, it’s an ad hominem attack and only makes it more difficult to have people wake up to the issue of peak oil.
You clearly now want to destroy (what's left of) Campbell’s credibility - and this is helping how exactly?

What are you trying to accomplish?

Me too. I've read everything I can find by Lynch, hoping to be convinced that Campbell, Simmons, Deffeyes, etc, are wrong. But while he sometimes has cogent criticism of the methodology of others, I have not been able to find any clean exposition of his own methodology that supports his claims that the world will be able to produce far more oil per year than it does currently.

Avo