Oil explorers drill through the tough times JAD MOUAWAD September 26, 2009 THE oil industry has been on a hot streak this year, thanks to a series of big discoveries that have rekindled a sense of excitement across the sector, despite falling prices and a tough economy.
These discoveries, spanning five continents, are the result of hefty investments that began earlier in the decade when oil prices rose, and of new technologies that allow explorers to drill at greater depths and through tougher rocks.
''That's the wonderful thing about price signals in a free market - it puts people in a better position to take more exploration risk,'' said James Hackett, chairman and chief executive of Anadarko Petroleum.
More than 200 discoveries have been reported so far this year in dozens of countries, including northern Iraq's Kurdish region, Australia, Israel, Iran, Brazil, Norway, Ghana and Russia. They have been made by international giants, like ExxonMobil, but also by industry minnows, like Tullow Oil.
Just this month, BP said it found a giant deep-water field that might turn out to be the biggest oil discovery in the Gulf of Mexico, while Anadarko announced a large find in an ''exciting and highly prospective'' region off Sierra Leone.
It is normal for companies to discover billions of barrels of oil every year, but this year's pace is unusually brisk. New oil discoveries have totalled about 10 billion barrels in the first half of the year, according to IHS Cambridge Energy Research Associates. If discoveries continue at that pace for the year, they are likely to reach the highest level since 2000.
Although there has been speculation about a coming peak and subsequent decline in oil production, people in the industry say there is still plenty of oil in the ground, especially beneath the ocean floor, even if finding and extracting it is becoming harder. They say prices and the pace of technological improvement remain the principal factors governing oil production capacity.
While the industry is celebrating the recent discoveries, many executives fear that lower prices might jeopardise their exploration drive. After falling to $US34 in December, oil prices have doubled, stabilising near $US70 a barrel. But if the world economy does not pick up, some analysts believe the price could fall again and oil companies contend that is not a prospect they can afford.
Despite reaping record profits in recent years, many executives have warned that they need prices above $US60 a barrel to develop the world's more challenging reserves.
''The No. 1 question that exploration teams have right now is, where do we go next?'' said Robert Fryklund, who ran the operations of ConocoPhillips in Libya and Brazil, and is a vice-president in Houston at Cambridge Energy Research Associates.
Exploration spending swelled in recent years, partly to offset a doubling of costs throughout the industry - from steel prices to the cost of renting deep-water drilling rigs.
A big issue confronting the industry now is how to drive down costs while maintaining a high level of exploration.
On average, costs have fallen by 15 to 20 per cent from their peak, according to petroleum executives.
Exploration remains risky, and costly, where some deep-water wells can cost up to $US100 million ($A115 million); 30 to 50 per cent of exploration wells find oil.
Some executives are also worried the world might face a shortfall in supplies in coming years if another decline in oil prices causes exploration to falter.
The chief executive of French oil giant Total, Christophe de Margerie, has warned that such a supply crunch is possible by the middle of the next decade. ''There could be a shortage of capacity,'' he said.
His concerns echoed those of Abdullah al-Badri, the secretary general of the Organisation of the Petroleum Exporting Countries, who said lower oil prices also threatened investments by OPEC nations.
Saudi Arabia is also unlikely to expand its production in coming years because of the uncertainty clouding future oil demand, according to Ali al-Naimi, the kingdom's oil minister. Saudi Arabia is just completing a $US100 billion program to increase its capacity to 12.5 million barrels a day, from about 9 million barrels a day just a few years ago.
Although they are substantial, the new finds do not match the giant fields discovered in the 1970s, like Alaska's Prudhoe Bay, Ekofisk in the North Sea, or Cantarell in Mexico. They are also dwarfed by the last enormous discovery, the Kashagan field in the Caspian Sea, discovered in 2000 and estimated to hold more than 20 billion barrels of oil.
''We have not seen another Kashagan, but still these finds are very material,'' said Alan Murray, the exploration service manager at Wood Mackenzie, a consulting firm in Edinburgh.
Since the early 1980s, discoveries have failed to keep up with the global rate of oil consumption, which last year reached 31 billion barrels.
Instead, companies have managed to expand production by finding new ways of getting more oil out of existing fields, or producing oil through unconventional sources, like Canada's tar sands or heavy oil in Venezuela.
The industry's record has improved in recent years, thanks to high prices. According to Cambridge Energy Research Associates, oil companies have found more oil than they produced for the past two years through a combination of exploration and field expansions.
''The appetite for opening new frontiers when prices were low in the 1990s was very small,'' said Paolo Scaroni, the chief executive of Italy's oil giant, Eni. ''Today, the biggest discovery of all is technology.''
One of the largest finds this year was made by a small producer, Heritage Oil, at the Miran West One field in the Kurdistan region of northern Iraq. It found nearly 2 billion barrels of oil and plans to drill a second well before the end of the year.
While the central government of Iraq has had a hard time attracting investors to develop its huge fields, local authorities in Kurdistan have been successfully wooing foreign producers.
NEW YORK TIMES
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