According to an old, half-serious joke, the best place to look for oil is in an oil field.
This knee-slapper was funnier when oil and gas companies deemed looking for oil the essence of their business.
No less now than ever, of course, companies want to produce all the oil they profitably can.
But they’re less eager than they once were to explore.
Modern investors harbor diminished patience for the swashbuckling oil finder who boasts of guzzling risk for breakfast.
And the continuous reservoirs of unconventional plays rearrange priorities.
With shales and oil sands, the problem isn’t finding hydrocarbons. The problem is figuring out how to move them to surface.
What’s really alluring about unconventional resources is that the volumes of oil and gas in place are huge. What’s really puzzling is quantities producible at a profit.
These mysteries underlie the International Energy Agency’s new warning about slumping investment in global exploration.
Total oil discovered last year fell to a record-low 2.4 billion bbl after averaging 9 billion bbl/year for the past 15 years.
The decline reflects sharply shrunken budgets for conventional projects, a product of depressed oil prices.
Conventional resources sanctioned for development fell 30% last year to 4.7 billion bbl. And the number of projects receiving final investment approval dropped to its lowest total since the 1940s, IEA said.
In contrast, investment in US shale projects “rebounded sharply” in 2016, and output rose as production costs fell by 50% against 2014 levels.
Growth notwithstanding, US output from shale remains far below global production from investment-lean conventional resources: 6.5 million b/d vs. 69 million b/d.
A market expected to grow by 1.2 million b/d/year worldwide during the next 5 years therefore must rely on the continued expansion of a new supply component of untested scope and durability.
This, IEA duly notes, is precarious.
But companies know where much of the oil is. And with supply from unconventional resources, most surprises so far have been on the high side.
(From the subscription area of www.ogj.com; author’s e-mail: [email protected])