*Includes discovery volumes until the end of November 2016. Source: Rystad Energy UCube
Global offshore discovered volumes
per continent and discovery year, MMboe.
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*
Source: Rystad Energy UCube
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Global offshore exploration investment by water depth, USD billion.
Frontier fields beckon despite downturn
Higher potential yields remain attractive
As E&P companies finalize the 2017 in- vestments budgets, the oil price con- tinues to trade around $50/bbl. At the same time, exploration results over the last four years have been disappointing.
The question then becomes, how can companies maximize the value from exploration?
In 2016, a total of 4 Bboe was discovered, out
of which 1. 6 Bboe was liquid and 2. 4 Bboe was
gas. The largest discovery was the Kosmos En-
ergy-operated Teranga/Ahmeyim gas discover y
in Senegal. Combined, this discovery is expect-
ed to deliver 1 Bboe of production. There were
also two major discoveries in Angola, where So-
nangol discovered both Zalophus and Golfinho.
These discoveries make Africa the continent
with the largest discovery in 2016. In fact, Africa
has been the largest continent for discoveries
since 2012. The exploration success in East
Africa and Egypt are the main drivers for this.
In addition to Africa, South America has been a
continent with high exploration success. Here,
Petrobras and other companies have opened up
a new frontier by targeting subsalt prospects
The 2016 exploration adds to the trend
we have observed over the last four years,
where discovered volumes are decreasing. As
a benchmark, total offshore production in 2016
was 16 Bboe, which means that the resource
replacement ratio in in 2016 was only 25%.
From 2005 to 2014, the yearly investment
related to offshore exploration increased from
$25 billion to $71 billion. This increase in
investment is from a combination of higher
activity as well as inflation. In 2005, the aver-
age cost per exploration well was $34 million;
by 2010 it increased to $75 million; and again
to $95 million by 2014. Since 2014, investments
have fallen sharply and are expected to be $35
billion in 2016. This represents a 50% drop
over two years. The change is a combination
of activity and lower unit prices. In terms of
exploration wells, the offshore exploration
well count has fallen from ~730 wells in 2014
to ~490 in 2016. At the same time, the average
cost per well has fallen to $70 million.
The rising unit costs and the lower exploration performances have resulted in lower
profitability for exploration. From 2008-2012,
the average discover y cost was $2.5 /boe, this
value surpassed $7/boe in 2014. The reduction
in unit costs improved this metric in 2015, but
the disappointing exploration results in 2016
have caused this metric to increase again to
almost $9/boe globally.
In terms of average offshore discovery
cost/boe for different water depths, deepwater exploration was the most successful from
2013-2015. The main reason is that deepwa-
ter is the least mature of the three groups
and the drilling prospects are larger. So while
deepwater exploration is more expensive
per well and has a higher risk, it is paying
off. This means that for companies willing to
take a risk of drilling on new frontiers, there
could still be large potential from exploration.
This also shows that drilling in the more shallow water is not very commercial. Companies
are often doing this to add additional volumes
close to existing infrastructure; on average,
this activity has been less successful than the
deepwater frontier drilling.
The disappointing exploration results we
have observed over the last couple of years are
important to reflect on. If exploration should be
commercial in a time with a low oil price, the trend
needs to be turned. Based on experiences, frontier exploration has proven successful and may
be one way to turn around the current trend. •