A significant rebound in the number and scale of conventional oil and gas discoveries, which have seen a drop in recent years, is not on the cards as investors question long-term, high-cost, frontier projects, according to a new report from IHS Markit.
Conventional oil and gas discoveries during the past three years are at the lowest levels in seven decades. the business consultancy said in a report.
The figures may come as no surprise, after the drastic collapse of oil prices in 2014 that reduced upstream investments.
However, the decline in conventional discoveries was also driven by competition from short cycle-time unconventional projects, and by financial investors who are reluctant to make large investments while uncertainties over the long-term demand for oil persist, IHS said.
“These factors shifted drilling away from areas where potential discoveries could be larger, and reduced upstream exploration investment,” senior advisor at IHS Markit, Keith King, said.
An additional reason for the modest exploration results in recent years is that the average discovery size of conventional fields varies greatly with the maturity of the basins being explored.
“Basins that are early in their life cycle—the frontier and emerging phases—have average discovery sizes 10 times greater than average discovery sizes made in the later, more mature basins,” according to the report.
“The average discovery size of these early life-cycle basins is approximately 210 million barrels versus 25 million barrels from mature basins discovered during the last 10 years,” IHS said.
However, while the average discovery sizes in deep-water and ultra-deepwater areas are five times greater on average compared to shallow water and onshore discoveries, operators are drilling fewer wells in deeper areas.
IHS figures showed that in 2014, 161 new field wildcats were drilled in deep and ultra-deep water, a number that by 2018 dropped to 68 wells. Drilling in frontier/emerging-phase basins declined by a similar amount, IHS said.
“In the current risk-averse environment, the industry prefers drilling in mature basins, near existing infrastructure, where operators can bring a project online in two to three years,” IHS Markit said.
“The industry will likely continue to invest more in less costly, less risky, quicker cycle time projects in the onshore and shelf, with deep-water investment remaining constrained,” King said.
“There will be areas of intense activity in the deeper water depths and in frontier and emerging-phase basins as well, but overall, these areas will only see incremental gains,” he said.
However, despite these significant challenges for conventional activity, there is always some chance that these trends could be reversed.
“Lackluster financial returns from unconventional production onshore in North America may drive more operators back to conventional exploration in the longer-term,” King said.
“Offshore companies have been able to substantially reduce the costs of building and operating offshore facilities necessary to develop resources in deeper waters. This renewed competitiveness could rekindle interest in conventional exploration where larger discoveries are made,” Kind added.