Exploration & Development: New thinking confronts the ‘brain drain’

Jan. 1, 2007
Expect 2007 to be a strong year for exploration and development worldwide.

Expect 2007 to be a strong year for exploration and development worldwide.

Among the challenges: Discovering economic oil and gas fields, profitably developing existing discoveries, tapping technology to improve exploration and recovery economics, contending with the so-called brain drain in the geosciences, and dealing with the rise of national oil companies. Some explorers believe most discoveries will come in areas previously off-limits to exploration. Others believe they will occur in areas already drilled and written off for sound reasons. These finds, they say, will be the product of new exploration thinking.

The size of the resource base seems to be the least of problems. The world target is estimated at 3-4 trillion bbl of conventional and nonconventional oil.

The challenge, said ExxonMobil Corp., is to combine investment, technology, and public policy in a way that enables companies to successfully explore for and produce those supplies and deliver them to market efficiently. The effort requires the participation of industry, government, and consumers.

The International Energy Agency estimated that the industry needs to invest more than $200 billion/year through 2030 to meet demand, and Lehman Bros. Inc. has projected 2007 exploration and production spending worldwide at $292 billion (see story, p. 25).

Geophysical contractors foresee further hikes in exploration outlays. Demand for seismic surveys already exceeds capacity, especially offshore. Some companies report record backlogs.

Late-year surveys showed that many large and small oil and gas companies plan to moderate capital and exploration spending in 2007. Some overspent their 2006 budgets by a margin larger than the capital spending increase they plan in 2007.

The vast majority of E&P companies say drilling economics is better than acquisition economics, but most of them still plan to purchase reserves when the price is right.

Giant oil fields are still being discovered-but not as many as in earlier decades. The more recently discovered giant fields have not been as large on average as those found in earlier years, and their peak production rates are therefore not as great.

Nevertheless, one industry database contains information on more than 2,000 undeveloped oil and gas discoveries worldwide. Many are small or remote, but they have a better chance for development with the innovative production schemes being applied in recent years.

The high oil and gas prices that stimulate so much exploration also aggravate the brain drain. Among other things, high prices prompt experienced geoscientists to resign positions in established companies to set up their own businesses, often in oil and gas E&P.

“Within BP,” said Tony Meggs, the company’s group vice-president, technology, “most of our younger staff has been attracted to the company because of our stand on the environment-and they hold our feet to the fire if it ever looks as though we are failing to live up to those commitments.”

The exploratory effort has little to do with the political goal of energy independence, argues Chevron Corp. Chairman David O’Reilly, who pointed out recently that not one of the world’s 193 countries is energy-independent. He said government policies that focus on independence are counterproductive because they create demand uncertainty and discourage producing countries from making the investments needed to supply markets.

International oil companies plan large capital and exploration spending increases in 2007 even as oil and gas operators in general look toward spending a larger share of their budgets outside the US.

The trend will intensify concerns about corruption and security.