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WGEG predicts bright global outlook

Written by  OE Staff Wednesday, 10 May 2017 11:06

In Westwood Global Energy Group’s (WGEG) eighth annual State of Exploration Report, the private equity firm expects a brighter outlook with exploration efficiencies starting to deliver results.

 

The firm’s report confirmed that commercial oil and gas volumes discovered fell to a nine-year low in 2016, as the “lower for longer” oil price scenario caused companies to reduce exploration programs further, with less exposure to frontier, especially deepwater, and emerging play drilling.

WGEG says the diminished 19-well frontier program delivered only one commercial success, a modest sized gas discovery offshore India. Frontier oil exploration continues to fail to replenish the emerging play prospect inventory, which is acting as a break on future oil exploration performance.

The commercial success rate was the highest in nine years at 35%, 8 percentage points higher than 2015, with success rates improved on the lower well count in proven plays and proportionally fewer high risk frontier wells.

Overall, WGEG’s report revealed that drilling finding costs increased to US$2/boe in 2016 from $1.6/boe in 2015 due to the lack of large frontier and emerging play discoveries and much smaller average discovery sizes. Oil prospect finding costs averaged $3.1/bbl in 2016 – slightly down on the $3.4/bbl recorded in 2015. 

The report says that 88% of the gross 17.4 billion boe discovered by the REP40 peer group companies since the start of 2013 is still at an appraisal stage, reflecting a marked slowdown in resource progression to production due to the oil price fall.

Exploration drilling plans for 2017 would suggest a slightly higher (~10%) drilling count than in 2016.  Plans are still fluid, however, and the number of wells drilled in Q1 2017 was down 35% on the same period in 2016, with a record high average commercial success rate of ~60%.

WGEG’s report says that 62 high impact wells are planned globally for 2017, targeting 19.5 billion boe (unrisked), 37% of which is oil.  A total of 24 of these wells are targeting frontier plays, 11 of which are in the Atlantic margins and the Norwegian Barents Sea.

 

“If the industry is out of the emergency room in 2017, it is not yet out of hospital. Even if oil prices recover further, explorers will need to focus on finding low cost oil and gas profitable to develop at $40/bbl or less,” says Dr Keith Myers, president, Westwood Research.“ Companies will need to believe they have the acreage portfolio, technology, people and processes to deliver exceptional performance. This means an efficient exploration process with larger prospect portfolios and fewer, better wells targeting bigger prospects at higher commercial success rates.”

“The industry is emerging leaner and fitter from this latest down-cycle, but it must be able to remain disciplined during the bull oil market to come (whenever that might be). Decreased competition means lower access costs for exploration acreage and more opportunity to create value from exploration for the accomplished explorer,” says Myers.

WGEG’s report covers five years of global high impact exploration and also benchmarks the performance of 40 international E&P companies and 991 completed conventional wildcat wells at a total drilling cost of $43.5 billion.

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