If the industry is out of the emergency room in 2017, it is not yet out of the hospital. Even if oil prices recover further, explorers will need to focus on finding low-cost oil and gas profitable to develop at $40 per barrel or less. Low-cost oil will always find a market, never mind the current stranded assets mantra.
Finding costs need to be kept below $1–2/bbl, or perhaps a bit higher for near field discoveries where development costs are lower. Being the average explorer of the past few years will not be good enough – companies will need to believe they have the acreage portfolio, technology, people, and processes to create value. This means an efficient exploration process with larger prospect portfolios and fewer, better wells targeting bigger prospects at higher commercial success rates.
It also means making discoveries that will not be stranded commercially or politically. In mature areas like the North Sea, it means exploring efficiently for oil and gas near late life fields to delay abandonment.
Left: REP40 benchmark companies gross wells drilled and success rates for the period 2012-2016 showing a drop in number of well penetrations, but an increase in success rates for 2016, implying greater pre-drill screening and selection of prospects. Right:, REP40 companies gross volume discovered for oil and gas with finding costs for oil only and overall hydrocarbons. Source: WILDCAT Database.
The industry is emerging leaner and fitter from this latest down-cycle, but it must be able to remain disciplined during the bull oil market to come (whenever that might be). Decreased competition means lower access costs for exploration acreage and more opportunity to create value from exploration for the accomplished explorer.
Andrew Hughes, Head of Research, Global Exploration
