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Discovery Recovery

“World Oil” reports that consulting group Wood Mackenzie predicts a revival in oil and gas exploration. Unfortunately, at this point, any signs of life would constitute a revival.  When oil prices collapsed, operators slashed budgets and exploration was especially hard hit.  When struggling to survive, exploration is the one place you can cut costs without having any immediate adverse financial impact.  The bad news is that exploration is the life blood of the industry.

In 2016 oil companies discovered only 3.7 billion barrels of oil, the lowest amount since 1952, and roughly 10% of the annual average since 1950. Andrew Latham with Wood Mackenzie cautions that exploration budgets might drop again in 2017, but thinks there might be an upswing in activity due to efficiency gains and lower contractor rates.  Also, operators seem to be increasingly optimistic that  OPEC-led production cutbacks might lead to lasting price recovery.  He contends that we will probably see 2016 as the low point in exploration success, but cautions that due to the lag between initial efforts and ultimate success, 2017’s nominal results might not be much better.

In 2014, before the price collapse, the industry spent about $100 billion on exploration. By 2016 this had dropped to $40 billion.  This year that figure might be as low as $35 billion, but some observers feel we could still see more wells drilled for less money than was previously the case.  In addition to efficiency gains and lower contractor rates, operators are abandoning high cost efforts in harsh environments, such as the Arctic, as well as ultra deep prospects.  Further, the industry has reduced the average number of days to drill expensive offshore wells from 75 days to 55.

Latham sees exploration spending eventually recovering in 2018 and 2019. This, in conjunction with the aforementioned changes in strategy, could mean that we experience more success in finding new reserves.  Otherwise, he cautions, we could see a global supply shortfall of 4.5 million barrels of oil per day by 2035.

To read the article in its entirety, please go to http://www.worldoil.com/news/2017/1/10/oil-discoveries-seen-recovering-after-crashing-to-65-year-low-wood-mac-says .

Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide.  Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.