Perhaps the most surprising announcement of 2010 was what I would call my ‘Surprising Niche I’ – the Levantine and Tabar biogenic gas discoveries offshore Israel, clearly extending the “Nile Delta” system. A massive find - or massive hype? If the latter, it has some close challengers for the prize that might have been offered by Kipling!
However, I shouldn’t spend my time writing, and your time reading, about what AIM-sized companies may or may not have discovered - and thinking back to the Shell reserves fiasco of 2002 reminds us that it is not just small companies that might win this prize!
To give some structure to my thoughts, I have been reviewing the “Hot Themes” that can be discerned by counting Internet news items – rough statistics, admittedly, but nonetheless a guide to what companies are thinking about. Also presentations by companies to investors offer useful insights and these are freely available on company websites.
As a result, my “Hot Themes” are: Deep Water, the Arctic, Unconventionals and mid-Continent Onshore. We will look at each of these in turn.
Of course, the most significant event in 2010 was the Deepwater Horizon tragedy and its impact on exploration offshore the USA.
Although the drilling moratorium in the Gulf of Mexico (GoM) has been ‘lifted’, the brakes are still being applied in the form of incredibly slow permitting instead of an outright ban. Some in the industry have suggested that it may be 2012 before deep water GoM exploration gets back to anything like normal. However, the U.S. official in charge of regulating offshore oil drilling said on 13th January 2011 that the speed with which his agency approves new drilling permits would "probably never" return to the pace seen prior to last year's Deepwater Horizon spill.
Meanwhile, deep water activity has continued offshore Brazil, Ghana, Sierra Leone, Liberia, Guyana, French Guiana, China, Angola, Australia, and in the UKCS West of the Shetlands, with Brazil and Ghana providing the 2010 highlights. Far to the south, in a hostile, though only partly deep water environment, drilling results around the Falkland Islands have been disappointing so far.
Looking forward to 2011, the South Atlantic, both the African and South American sides, promises to be especially active: more in Brazil sub-salt (Petrobras and BG), more Ghana, and the whole West Africa Transform Margin (Tullow*, Anadarko), potentially Guyana and French Guiana, maybe also Mauritania.
There is a long history to Arctic exploration and production but now the offshore Arctic is beginning to open. First results from Greenland have been disappointing but Russia and Norway have reached an agreement that should open the Barents Sea up for further exploration (see GeoExpro Vol. 7, No. 5). However, the USA Arctic segment is suffering from the generalised drilling moratorium - and who can tell what is happening in Russia?
In 2011 and beyond, we should expect more of the same: Cairn is planning to spend US $500m in Greenland in 2011, hard on the heels of its US $400m in 2010; the Barents Sea will probably see increased multi-client 3D seismic activity. Not much will happen offshore the USA and Russia, however. And It will take a while before the new strategic alliance between BP and Rosneft – see below - leads to exploration of their Kara Sea acreage.
The pursuit of unconventional gas – predominantly Shale Gas - remains very active in North America, despite relatively low gas prices, threatened state taxes and environmental concerns: much resource exists – whether and when this can be converted to commercial reserves is open to question. The low availability of drilling rigs capable of drilling the required horizontal wells and of hydraulic fraccing equipment will curtail widespread replication elsewhere for the foreseeable future.
However, because of the higher prices and therefore fundamentally better economics, Shale Oil will develop real momentum, especially in the northern USA.
My ‘Surprising Niche II’ will be the pursuit of unconventional gas in north-west England – Shale Gas (the Namurian Bowland Shale) and Coal Bed Methane (classic Carboniferous). Alkane's and IGAS's identification of a Coal Bed Methane opportunity is perhaps unsurprising - the Lancashire coal fields had a long and productive history, and generally speaking, where there is coal there is methane. That the Bowland Shale is a potentially rich source of Shale Gas was news to me; Cuadrilla drilled a successful exploratory well a few miles to the east of Blackpool last year.
Exploration in Russia is withering on the vine due to a punitive tax regime that does not appear to be about to change. In principle, the agreement for a new Russia-China pipeline should re-energise exploration in East Siberia - but not until the economics are made more attractive by a change in the tax regime.
In onshore Africa, the interior rifts will continue to attract attention. Perhaps some will be attracted to the true interior basins - but maybe host governments need to change their expectations first!
In all onshore areas – the Former Soviet Union, Kurdistan, western Iraq, central Africa – the lack of relatively inexpensive ‘exploration 3D’ is a major constraint on efficient and effective exploration.
Global exploration feels quite fragile, especially for the majors who are on the ‘treadmill’ of reserves replacement. On the other hand, as the oil price threatens to charge past $100 a barrel once more, there is every reason to think that the mad scramble for acreage that sees the inflated expectations of many host governments actually being met will continue.
The continued deep water activity everywhere apart from the Gulf of Mexico has been, and looks to continue being, the main bright spot. However, apart from in the GoM, the majors seem to be relatively uninvolved.
Thus fresh, transformed, access to resources provides some of the context for BP’s recent strategic global agreement with Rosneft, not least important being that this access is outside the USA where there is a general slow-down and where BP might feel it is disadvantaged, at least in the short term. It should also be seen in the context of global exploration becoming more difficult and it making sense for western majors to pursue strategic relationships of “mutual advantage” with resource-rich NOCs.
Will this pursuit of strategic relationships be a fifth “Hot Theme” for 2011? Will BP’s action trigger other majors to go down the same path, much as BP’s 1998 takeover of Amoco triggered the subsequent merger wave of Exxon and Mobil, Total and Elf, Chevron and Texaco, Statoil and Norsk Hydro? Only time will tell!