Explorers achieved significant success in 2017 as companies emerged from the downturn leaner and more focused on making smart portfolio decisions.
The industry has made a return to high-impact exploration in ultra-deepwater and frontier basins after a period of focusing on low-risk, low-reward activity. Oil accounted for 56% of discovered volumes, a share last seen in 2008, with eight out of the top 10 discoveries being oil-weighted.
Dr Andrew Latham, vice president, exploration research, Wood Mackenzie, said: “2017 looks like the most profitable year for the oil and gas exploration sector since 2010. Explorers invested only around $40bn in conventional exploration and appraisal, down from $95bn in 2014. This reduced spend focused on making discoveries with a good chance of early commercialisation. This included more emphasis on high-impact exploration in ultra-deepwater and frontier basins after a period of focusing on low-risk, small-prospect drilling.”
Dr Latham said that exploration added over 12 billion barrels of oil equivalent (bnboe) conventional new field volumes in 2017. Oil accounted for seven billion barrels, a 60% share of discovered volumes last seen in 2008. Nine out of the top 10 largest discoveries are oil-weighted.
“These volumes are currently the smallest annual total for a decade but we expect that they will be boosted by further disclosure and appraisal,” Dr Latham added. “This resource creep has averaged around 40% over the decade. If repeated for 2017, total discoveries for the year will amount to 16-18 billion boe (barrels of oil equivalent).”
Resource discovery costs were the same as 2016 ($2.15/boe) and slightly better than the 10-year average of $2.25/boe. Assuming a similar level of resource creep for 2017, Wood Mackenzie expects discovery costs will ultimately be around $1.60/boe, the lowest level since 2011.
Dr Latham observed: “Exploration well success rates of 36% are the highest since 2013. Operators are being rewarded for refocusing their portfolios and high-grading prospects. The average new field discovery size held up at 63mmboe compared with 57mmboe in 2016 and a 10-year average of 68mmboe (million barrels of oil equivalent).”
Six giant (>500mmboe) and 15 large (>100mmboe) discoveries were made in 2017. These finds account for 78% of total discovered resources. Kosmos BP’s 2.6bnboe Yakaar gas discovery in the ultra-deepwater of Senegal is the largest discovery of 2017 by far.
“We expect the giant oil discoveries in Iraq (Eridu), Mexico (Zama), Whale (US Gulf of Mexico) and Alaska (Horseshoe) to be declared commercial in the near term. The large oil discoveries Amoca Deep (Mexico), Snoek (Guyana) and MRL-231 (Brazil) all benefit from close proximity to existing fields and should be included in near-term phased development plans,” Dr Latham commented.
“It is too early to measure exact exploration returns for 2017, but there is a strong likelihood that exploration created value. Low discovery costs and a weighting towards large, commercial oil finds should mean that full-cycle returns achieved double digits for the first time since 2010.”
