Another year is starting in the world exploration cycle.
The world's remaining exploration organizations have experienced a few months of historically high oil prices. Many capital and exploration budgets for 2000 are significantly larger than those of 1999, and even last year's budgets were more than most companies actually spent during the year.
In OGJ's Focus on Exploration article starting on p. 55, Ian Cross summarizes 1999 exploratory drilling. We hope you find the review interesting.
The breadth of upstream activity that took place during the year is remarkable when displayed in one place such as the article Cross compiled. The article summarizes significant exploratory and appraisal drilling, important discoveries of the year, field start-ups, and other high points.
So what are the implications of $25 oil and $10 oil?
Where in the cycle?
As Cross points out, it is taking some time for explorers in much of the world to get back to business after the historically low oil price levels of second half 1998 and first half 1999.
Many are selling properties, relinquishing blocks, and otherwise restructuring just to survive.
As we have observed many times, the $10 oil that seems a favorite of consumers is a difficult dose of reality for those who choose to produce it.
Along came $25 oil in late 1999, and those fortunate enough to hold interests in oil production got a much- needed economic boost. A review of mergers and acquisitions shows that, for some, the price swing came too late.
Of course, inherent in oil at $25 are the seeds of the next low price period in the cycle.
Whatever other forces bear on the oil market, it is still governed by supply and demand. Political decisions can have far-reaching effects on the market's workings. Still, economic entities generally must live and die by the consequences of political actions, while governments do not.
Toward lower prices
Alas, we are told that it is just a matter of time before OPEC opens the tap.
After all, we hear, the countries that have the highest reserves don't want high prices to encourage too much drilling elsewhere because that could bring on competing volumes of oil. If sustained, high prices might even induce further development of alternate fuels.
The world has billions of people who use energy products and only a handful capable of discovering (replacing) them.
