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Michael Lynch: A Better Approach to Conventional Oil Exploration


The advent of commercial production of oil and gas from shale has made geological risk seem, to many, a thing of the past. But the history of oil exploration is one of trying to overcome the odds; for small companies, one too many dry holes means failure and substantial amounts of research and effort have gone into improving the odds for success.

It is often said in more prosaic terms that what makes a prospective area attractive to wildcatters is the discovery of oil. Once the first find is made, many other companies flood into the area. This reflects the nature of exploration risk, but too many treat wildcats as a role of the dice: you can’t predict that any given well will be successful, so you should assume the worst. But in reality, exploratory risk has been reduced by advanced imaging technologies though it is hardly eliminated.

Which highlights one of the attractive principles of shale basins, namely the continuous nature of the resource. Very little exploration risk is incurred by drillers and it is profitable to acquire large tracts with the intention of developing them incrementally. This has led some to refer to the shale industry as being more like a manufacturing process than the exploration for and production of conventional oil.

This is why leases in frontier areas usually involve commitment to a minimum number of wells by the exploring company. In hostile (expensive) environments such as offshore Arctic plays, where wells can run into the hundreds of millions of dollars, committing to multiple efforts can be extremely risky.

On the other hand, a cheaper well in a new area which is conventionally located, such as onshore South America, might be better treated as an element of manufacturing than a roll of the dice. While obviously success rates are lower than in shale areas, nonetheless if the geology has been studied than the explorer should recognize that it is rarely a matter of if oil will be found, but when.

At the company level, Bijan Mossavar-Rahmani, an international oil and gas executive, once explained to me that most companies try to minimize risk and financial outlays by signing exploration contracts for new areas that commit them to as little work as possible, with the intention to continue drilling only if a discovery is made. Otherwise, they drop the sometimes very prospective and effectively untested acreage and go elsewhere. But his strategy was to recognize that an oil province will likely yield discoveries given enough time and effort. So the strategy was to continue to explore beyond the initial commitment until, hopefully, the code was cracked.

Needless to say, for small companies it can be risky to commit to a lengthy program of exploration in one country, but this type of risk has long been offset by joint ventures. Certainly, any given company might choose to accept the perceived risk, with the full knowledge of shareholders, but overall there simply needs to be recognition that geological risk is much more a case of probability than hit or miss, and by committing to a regular plan of drilling, a company is likely to guarantee success, even if it is not a once-in-a-lifetime hit. Numerous moderate producers can be just as profitable as one larger field, with the right fiscal regime of course.


9 Comments on "Michael Lynch: A Better Approach to Conventional Oil Exploration"

  1. I AM THE MOB on Thu, 1st Nov 2018 12:50 pm 

    Hey Lynch you neckbearded fake news spreader!

    Oil discoveries in 2017 hit all-time low –Houston Chronicle

    IEA Chief warns of world oil shortages by 2020 as discoveries fall to record lows

    Saudi Arabia’s Energy Minister Warns of World Oil Shortages Ahead

    Saudi Aramco chief warns of looming oil shortage

    An oil crisis may be brewing — and it’s not because of decreasing demand

    World Oil Shortages To Lead To Oil Price Spike By 2020s, warns Goldman Sachs

    HSBC Global Bank: 81% of world liquids production already in decline and world oil shortages ahead

    Citigroup CEO Ed Morse warns of oil shortages coming soon

    2020s To Be A Decade of Disorder For Oil

  2. I AM THE MOB on Thu, 1st Nov 2018 12:51 pm 

    Lynch I can’t wait till you are lynched when society collapses!

    You deserve to suffer!

  3. Парни, пожалуйста, ударьте антиамериканскую собаку, которую я сделал из гранитного форума on Thu, 1st Nov 2018 1:39 pm 

    ^mm^ please address supertard lynch in respectful tone and manner

    thank you nasa supertards for giving us the quiet x-plane (son of concorde) which will be in testing very soon, london to nyc 3 hrs or more than half faster

  4. makati1 on Thu, 1st Nov 2018 7:24 pm 

    Maybe we won’t need that oil because we will not be here?

    “America’s Nuclear Death Wish – Europe Must Rebel”

    “The Trump administration’s declared scrapping of a crucial arms control treaty is putting the world on notice of a nuclear war, sooner or later….Any such war is not winnable. It is mutually assured destruction. Yet the arrogant American rulers – some of them at least – seem to be deluded in thinking they can win such a war….Any such war is not winnable. It is mutually assured destruction. Yet the arrogant American rulers – some of them at least – seem to be deluded in thinking they can win such a war.”

    “Putting the American logic together one can say that the US rulers have a death wish on the planet. With criminal recklessness, they are moving to loosen the international controls over deploying nuclear weapons and are creating a situation in Europe that puts nuclear war on a hair-trigger….The European Union has reacted to Trump’s announced withdrawal from the INF Treaty with horror….The insanity of America’s death wish for nuclear war has to stop. The American ruling class won’t stop it because their death wish mentality is so suffused with blind arrogance and ignorance and it is so integral with the “normal” functioning of their capitalist military-industrial complex.”

    And the American Sheeple will not stop it because they are too stupid, lazy and brainwashed. Slip slidin’…

  5. makati1 on Thu, 1st Nov 2018 7:35 pm 

    “Sheeple: Why You Should Feel Sorry For Them”

    “…there are actually three kinds of people: those who know, those who don’t know, and those who don’t care to know. Members of the last group are the kind of people I would characterize as “sheeple.”…

    when confronted with facts contrary to their conditioned viewpoint, they become aggressive and antagonistic in their behavior, seeking to dismiss and attack the truth by attacking the messenger and denying reason…

    the characteristic that absolutely defines a sheeple is not necessarily a lack of knowledge, but an unwillingness to consider or embrace obvious logic or truth in order to protect their egos and biases from harm. A sheeple’s mindset is driven by self centered motives….

    So-called mainstream media outlets go out of their way to reinforce this aggressive mindset by establishing the illusion that sheeple are the “majority” and that the majority perception (which has been constructed by the MSM) is the only correct perception….

    The goal is to give sheeple comfort that they are “normal” and that anyone who steps outside the bounds of the mainstream is “abnormal” and a welcome target for the collective.”

    “Sheeple Are Nothing Without The Collective
    Sheeple Crave Constant Approval From Others
    Sheeple Are Incapable Of Original Creativity
    Sheeple Have No Passion
    Sheeple Are Useless
    Sheeple Are Easily Forgotten”

    Are you a Sheeple? I’m not but some on here are. Slip slidin…

  6. Davy on Fri, 2nd Nov 2018 3:27 am 

    I wanna get pumped….I wanna have ur baby, daddy……..u saw my selfie yesterday.

    Any interest out there????????

  7. GregT on Fri, 2nd Nov 2018 4:28 am 

    I wanna get pumped….I wanna have ur baby, daddy……..u saw my selfie yesterday.

    Any interest out there????????

  8. rockman on Fri, 2nd Nov 2018 1:47 pm 

    There is significant risk in all shale. Not a risk of drilling a dry hole but the risk of drilling a well with a poor rate of return. An even worse risk: drilling a well that doesn’t lead to booking a significant amount of new proven reserve. Proven but undeveloped new reserves (PUD’s) is a main motivation behind public companies drilling shale wells.

    With respect to drilling conventional prospects, as explained many times, new tech has allowed a much higher success rate today then companies had 50 or 60 years ago during the foolishly coined “easy oil days.” The problem today isn’t finding oil or NG. The problem is find very big new oil and NG fields.

  9. Free Speech Message Board on Sun, 4th Nov 2018 8:25 pm 

    What would racists say if they took a DNA test and found out that they were 1% Indian?

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