WATCHING THE WORLD TOO FEW EGGS, TOO MANY BASKETS

Nov. 2, 1992
With David Knott from London The 1991 average price of North Sea crude oil fell 20% from the year before. This fall, not high operating costs, has made companies more reluctant to invest in new North Sea fields, says Mackay Consultants Ltd., Inverness. Rival analyst County NatWest WoodMac (CNWM), Edinburgh, suggests another possible cause: better prospects elsewhere. Mackay identified a 27% drop in unit exploration costs from 1981 to 1991, with a 7% slide in unit development costs and a 32%

The 1991 average price of North Sea crude oil fell 20% from the year before.

This fall, not high operating costs, has made companies more reluctant to invest in new North Sea fields, says Mackay Consultants Ltd., Inverness.

Rival analyst County NatWest WoodMac (CNWM), Edinburgh, suggests another possible cause: better prospects elsewhere.

Mackay identified a 27% drop in unit exploration costs from 1981 to 1991, with a 7% slide in unit development costs and a 32% rise in unit production costs for the same period.

In money of the day terms, crude oil averaged $35.93/bbl in 1981 and $20.05/bbl in 1991, a drop of 44%. At 1991 values, the 1981 barrel was worth $53.75, so the plunge is worse at 63%.

Despite this, Mackay found that integrated oil companies showed a 10% rate of return on capital invested for 1991, while nonintegrated oil companies returned 6.8%.

A good performance by larger companies, considering the pressure on costs in the industry, but not enough to attract investment away from other industries or into the region.

PHILIPPINES BEST

CNWM said developing a 25 million bbl field in the Philippines would bring a 24% return on capital. Both 50 million and 100 million bbl developments would return 29%, while a 200 million bbl project would rake in 35%.

Developing the same size fields off Norway would return 1%, 8%, 10% and 17%, respectively. Off the U.K., the returns would be 6%, 15%, 19% and 25% respectively.

Ranking nine countries by rates of return on development of those four field sizes, CNWM ranked Philippines first, Congo second, Viet Nam and Angola equal third, Gabon and the U.K. equal fifth, Indonesia seventh, and Malaysia and Norway joint eighth.

...OR IS IT NORWAY?

Looking at reserves found for each wildcat well, the positions reversed. Norway came first, U.K. second, Malaysia and Vietnam equal third, Congo fifth, Angola sixth, Philippines seventh, Indonesia eighth, and Gabon ninth.

CNWM said oil industry capital is migrating at the moment but did not say where.

The statistics say only that investment decisions are not clear cut. They do not suggest an investment policy apart from the old one of not putting all the eggs in one basket.

But there are a lot of baskets and increasingly fewer eggs.

Copyright 1992 Oil & Gas Journal. All Rights Reserved.