Exploring more with less

June 23, 2014
Oil and gas exploration has increased in complexity over the last decade. As companies continually strive to meet rising demand, developing discoveries is often an exercise in doing more with less.

Oil and gas exploration has increased in complexity over the last decade. As companies continually strive to meet rising demand, developing discoveries is often an exercise in doing more with less.

Speaking June 17 at the European Association of Geoscientists & Engineers' (EAGE) annual conference in Amsterdam, Andrew Latham, vice-president of Wood Mackenzie's Exploration Service, noted the rise in exploration and development costs as part of the impetus driving more streamlined operations.

"As of 2012, the average development cost worldwide increased to $4/boe up from $1/boe only a decade before," Latham said.

He was joined by a panel for EAGE's opening forum, "Experiencing the Energy—Doing More with Less," which focused on the challenges faced in the current energy climate.

Harder decisions

Latham said the internal rate of return on full-cycle developments has declined to 12% within the last decade. "Economic performance considerations are forcing many companies to make harder decisions on exploration and development opportunities," he said.

WoodMac's research shows that operators working in the world's top 20 basins typically exceed average performance. New field development in areas like offshore Brazil (oil) and East Africa (gas) surpass increased costs. Other factors inducing higher development costs include increased drilling time for deepwater exploration, an average that has continually increased since 2000. As underscored by WoodMac, the majority of new oil and gas resources are in deep and ultradeep water. Wells in these environments are being drilled at increasing depths where higher temperatures and pressures are encountered.

Ceri Powell, vice-president of strategy at Royal Dutch Shell Group, added, "We are watching costs closely with respect to deepwater wells." Average nonproductive time is 30-40% for deepwater operations, which can be burdensome with day rates exceeding $1 million. With Shell's Perdido producing in 9,500 ft of water, wells drilled at this depth are almost standard in the US Gulf of Mexico. Rising technical and commercial complexity has not been matched by higher prices.

Doing more with less also was referenced as a factor of time. In many regions, licensing requirements for exploration timeframes have reduced by 50% from a decade ago. "Cost decisions are made in less time due to the extreme competition in many of these offshore areas," Powell said.

Onshore resources

Several panelists also discussed onshore resources. Global resource replacement has seen a majority of volumes added from unconventional sources. For both deepwater operations and unconventional development, less public acceptance can be problematic for the industry. Hydraulic fracturing remains a point of contention for stakeholders in many regions where these resources have yet to be developed. And conducting seamless operations with less community support can further increase costs for many operators.

"Complexity is not only a technological concern, it also relates to policy," said Wouter van Dieren, founder of the Instituut voor Milieu- en Systeemanalyse, Amsterdam's leading environmental think tank. "We each lead two lives," he said. As concerned citizens and technologists, the industry is forced to meet global energy demand while also ensuring that operations are done safely, with less of an impact on the natural environment. Meanwhile, "value systems are changing internally and externally," Van Dieren said.

The panel cited many aspects on how the industry is contending with developing projects with fewer resources. While economic resources can be limiting, resources also can refer to social capital, such as less public support, less time to make development decisions, and fewer skilled engineers to carry out projects.

These panelists agreed that these factors were not in play for every region. In many cases, they must be weighed against resource potential.

"Much of the decision-making comes down to selecting quality over quantity of resources," said Marc Blaizot, senior vice-president, exploration, Total Exploration & Production. Increased energy demand translates into more capital expenditures, which can often decrease profitability. "With no profit, there's no project," Blaizot said.