We consider how the industry can best address the critical issue of small discovery volumes and ensure its survival.
UK oil and gas explorers are facing some very difficult trends that threaten the long-term future of the North Sea. Wells are simply not finding enough new resources – a problem which set in long before the oil price decline and which will not be easily resolved should they recover.
Lack of investment is not the issue. Between 2008 and 2013 the UK industry spent US$13.9 billion on exploration and appraisal work. This represents US$3.86 per barrel of oil equivalent (boe) produced in the same period which is close to the average rate of exploration investment by leading companies worldwide.
Yet all this drilling is finding very little oil and gas. During the period from 2012 to 2014, 86 offshore exploration wells added just 166 million barrels of oil equivalent (mmboe) - a reserve replacement ratio of just 10 per cent. Including the dry holes, each well is adding an average of less than 2 mmboe. This discovery rate is an order of magnitude smaller than the volumes required for commercial offshore exploration.
Given the sizable number of wells drilled, such modest results suggest a systemic failure to predict prospect sizes and assess risks, rather than a statistical aberration. Explorers are not getting the well results their geologists planned, an inconsistency which has significant implications for the future.
Yet-to-find assessments based on the sum of undrilled prospects quantified in the same flawed manner hugely overstate the UK's exploration potential. We have used an alternative method, based on trend projection, to estimate that UK exploration will add 3.7 billion boe by 2035. Even this yet-to-find potential would slip to just 1.1 billion boe if the 2012-2014 trend was to continue over the next 20 years.
Results from the past three years indicate the need for radical change. The industry cannot continue to drill similar prospects in the hope of a different outcome. It must either cease most of its exploring or shift focus to higher-impact plays.
However, while the second option requires larger prospects, there is greater geological risk and less chance of success. In a mature province such as the UK, these opportunities mainly exist in new and overlooked plays where there are no guarantees.
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