There is a lot of depressing news out there. Shell, Marathon, Anadarko, Husky Energy, Chesapeake... just a few of the O&G companies which posted poor third quarter results. Virtually every day an exploration or service company announces layoffs, and freezes on recruitment and salaries are commonplace. Meanwhile, the number of new drilling permits issued by the Texas oil and gas regulator plummeted by more than half in a year. If the oil price continues to be depressed for some time, there seems to be little left to cut without impairing long term stability and safety.
But there are always two sides to every story. The drop in drilling permits in Texas has actually been accompanied by an increase in production, as companies learn to drill more efficiently. Norway’s recent offshore round received applications from 43 companies, about the same as the previous, pre-slump offering, while two significant discoveries have reportedly been made in the now very mature waters of the UK North Sea. In the eastern Mediterranean there is a lot of excitement over ENI’s discovery of an estimated 30 Tcf of gas in a previously overlooked play offshore Egypt. There still appears to be an appetite for exploration.
According to analysts Richmond Energy Partners, exploration activity this year is down by more than 40% and commercial success rates have fallen to 24%, with only one in five technical exploration successes being deemed a commercial success in some areas. As we all know, the present slump in the industry is partially due to a glut of hydrocarbons in the system – so in the present climate do we stop exploring? Or do we keeping looking and try to get better and more efficient at finding oil and gas? It would appear that the slowdown in activity means that now is a good time to pick up acreage, as companies divest and fewer of them are chasing the opportunities.
Don’t give up on exploration. It is the lifeblood of the industry.