Worldwide exploration and development, stimulated by high prices of oil and natural gas, should have a positive but challenging year in 2008.
Activity remains constrained by limits on access to reserves and exploration acreage and by a shortage of skilled personnel.
The human factor is the most urgent constraint. Large percentages of oil company staffs become eligible to retire in the next 5-10 years.
Worker shortages, for example, have been cited as a factor in the delayed production start of supergiant Kashagan oil field in the Caspian Sea off Kazakhstan, one of the world’s largest fields.
Lack of new talent is one of the most dangerous threats to the long-term health of ConocoPhillips, Chief Executive Officer James Mulva told Business Week in late December.
Reserves access
Another threat looms in the form of access to reserves. National oil companies, led by those of Saudi Arabia and Iran, control the great majority of the world’s proved oil and gas reserves. Another group of countries controls the next tier. International oil companies hold about 6% of the reserves, said John McDonald, vice-president of strategic planning, Chevron Corp.
“Access to oil and gas reserves is not a given,” McDonald said, “particularly as we’re encountering a new wave of resource nationalism in some large producing countries and entrenched barriers in resource countries like Mexico, where the constitution continues to prohibit foreign investment in the oil sector.”
To do its job, the E&D industry has big spending plans again in 2008. The planned capital and exploration outlay tops $354 billion, according to a mid-December 2007 survey by Citi Investment Research. For the 247 companies surveyed, that is a 9.3% increase from estimated 2007 expenditures.
The survey reflects the expectation of a modest increase in the US, a modest decline in Canada, and solid growth in operating areas outside North America. The outlays are directed 8% to Canada, 24% to the US, and 68% outside North America.
The 10 largest spenders for 2008 account for 44% of total spending compared with more than 51% in 2007. In late 2006, the International Energy Agency projected that the industry needed to invest more than $200 billion/year through 2030 to meet demand.
Top company spending plans indicate that this is occurring. A few budgets: Chevron $23 billion, up 15% on the year, and ConocoPhillips $11 billion, up 8%. BP PLC plans to average $6 billion/year over the next decade. Saudi Arabia is investing $30 billion over the next 5 years.
Most of the expenditures are geared toward drilling and equipping wells and bringing new fields on production. Worldwide, OGJ counted 90 major upstream projects whose oil or gas output is scheduled to start or peak in 2008, compared with only 68 in 2007 (OGJ, July 23, 2007, p. 43).
BP CEO Tony Hayward noted that untold billions of barrels could be produced by improving the recovery factor, as his company has done with enhanced oil recovery on the Alaska North Slope.
“The worldwide recovery factor for conventional oil reservoirs is around 35% of oil in place—if we can raise that by just 5%, it would add around 170 billion bbl to world reserves.
“In Alaska, we and our partners are raising our recovery rate to around 60% by applying new technologies such as horizontal drilling, miscible gas injection, and gas cap water injection.”
Of the eight megaprojects OGJ counted as peaking in 2008 in the US, seven are in the Gulf of Mexico.
ExxonMobil Chairman and Chief Executive Officer Rex W. Tillerson said the US can still boost its oil production.
“The US was endowed with the second largest oil and gas resource base in the world, and even after more than a century of development and production is still ranked No. 5 in remaining oil and gas,” he said.
US resources meet 50% of domestic demand but “could supply more if more of it were opened to exploration, development, and production,” Tillerson said. “Federal and state governments…have ruled off-limits an estimated 31 billion bbl of recoverable oil and 105 tcf of natural gas.” The majority is in the Rockies and offshore, not in the Arctic National Wildlife Refuge, and industry has the technology and experience to produce safely and with minimal environmental footprint.
Industry size
Besides having access to reserves, the E&D industry must be immense to supply the needs of a huge market. The scale of the global energy industry is difficult to grasp, said Tillerson.
Daily consumption equates to 230 million bbl of oil equivalent, including 40,000 gal/sec of oil.
“ExxonMobil is the largest nongovernment energy company and has the largest market capitalization of any corporation in the world. Yet we produce no more than 2% of the world’s total energy,” Tillerson said.
Meanwhile, operator responses to the study by Citi Investment found that seismic and computer-aided exploration (CAEX) technology has taken second place behind horizontal and directional drilling as the technology or trend that has the greatest impact on E&P spending plans. Nevertheless, more than half of the respondents still voted seismic/CAEX the most important.