The future for conventional oil projects is far from over despite the recent slump in large finds and an industrywide shift to developing tight oil, delegates at an upstream event in London heard last week.
While fewer conventional exploration wells are being drilled as a result of the upstream spending collapse in the wake of the oil price slump, many in the industry have prematurely concluded that sources of conventional oil are running out, according to the head of exploration research at Wood Mackenzie Andrew Latham.
“People do tend to look at the total volumes being added in recent years and conclude that we are running out of subsurface potential, I find that unlikely,” Latham told the PETEX conference. “It’s our view that conventional exploration is a perfectly viable growth and renewal option, particularly for those that are good at it.”
Conventional oil finds will remain a key driver of new production growth, Latham said, particularly as industry costs come down and access to new acreage begins to ease.
Some 10 million b/d of current global oil production is being sourced from conventional oil finds made since 2000, he said, a figure that is likely to double to around a fifth of total world oil production by the mid-2020s.
Pointing to new exploration plays such the prolific gas carbonate geology offshore Egypt and Cosmos’ recent finds in Senegal and Mauritania, Latham said discovered volumes of conventional oil and gas remain, on a per well basis, on par with historical averages.
“In reality, a lot of exploration’s recent decline is nothing more than the fact that it’s drilling fewer wells in the downturn,” he said.
According to Wood Mac, exploration wells currently, return an average 25 million boe each of new resources across the industry including dry wells. Despite surging investment in tight oil by many producers, incremental output from the unconventional sector still remains half that from conventional projects, Latham noted.
Italy’s Eni currently leads its oil major peers as the most successful explorer in recent years, bucking the downturn by finding a slew of new reserves in conventional plays. The company is now pushing to develop its massive gas finds off Mozambique and appraise its 30 Tcf Zohr find off Egypt.
Eni’s exploration chief Luca Bertelli, also speaking at the event, said the company plans to continue its strategy of targeting new conventional sources of oil and gas, albeit will fewer, more focused exploration wells.
“Many companies, and some majors, are heavily repositioning themselves on organic unconventionals,” Bertelli said. “We, as Eni, still trust in the solidity of our program and our position today for continuing our sustainable success in the future.”
Africa is still the “backbone” of Eni’s exploration focus followed by Asia and Europe, he said. The company is also keen to drill “simple wells” with little exposure to more costly plays such as high-pressure, high-temperature geology.
Eni has more than halved the number deepwater wells to around four or five a year since 2014, he said, targeting fewer high-risk, high-reward prospects and being more selective on the acreage it drills.
“In a capital constrained environment we are obliged to drill fewer but better wells,” Bertelli said.
“We have to reconstruct the confidence that conventional exploration is not over and can still provide giant and super-giant opportunities to be chased in the future,” he said.
RISKS OF SPENDING SLUMP
Bertelli also echoed similar sentiments to the International Energy Agency which last week sharpened its warnings over the risk of an oil supply crunch in the coming decade due to the massive cuts in upstream spending since 2014.
The IEA on November 16 said sliding levels of investment in conventional oil fields is putting future flows from the sector on a knife edge and threatening to create a supply “gap” of some 16 million b/d by 2025.
“With this trend and the mood of the industry, we run the risk that conventional will play just a minor role in reserve replacement in the future,” Bertelli said.
Despite a 40% fall in industry costs since 2014, upstream costs are still out of step with much larger fall in oil prices over the same period, he said, making greater drilling efficiency key.
“Our efforts in these difficult years, is focused on incremental exploration at sanctioned projects, and near-field exploration synergies with existing infrastructure,” he said.
Wood Mac’s Latham concurs.
“Exploration has not had a volume problem, but boy has it had an economics problem,” he said.
Due to high service costs and greater field complexity, “You’ve got an industry which is failing to make any money from more than half of the volumes it discovers,” Latham said.
Listing a series of measures needed to “fix” current upstream economics, Latham said oil companies must focus only on their best-quality prospects; shift towards locations where fiscal terms and regulations are being eased to support exploration, and further drive drilling efficiencies.
Oil companies should also look to lower their access costs to new exploration plays by renewing and switching to lower cost acreage during the downturn for future growth, he said.