Finding New Exploration Provinces

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Finding New Exploration Provinces 20th September 2016 The Geological Society, London

Over the past 2-5 years a number of new promising basins have opened up.

Barents Sea

Eastern Canada

Eastern Mediterranean NW Africa

NE Latin America

Onshore East Africa

Offshore East Africa

Key Oil Gas

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Higher oil prices have lead to significant discoveries, but the recent drop in oil price has seen a marked reduction. 125 Iara WTI Crude Oil Price ($/bbl)*

Golfinho/Atum

Jupiter

100

SNE field Lula Sugar Loaf Leviathan

75 Kish

Libra Mamba Johan Sverdrup

Galkynysh

50

Liza

Kashagan Tiber

Zohr

Azadegan

25

Key 5 Bboe recoverable reserves

Shah Deniz

0 1998

2000

2002

2004

2006

2008

2010

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2012

2014

2016

* Adjusted for inflation to March 2015 3

Despite cost reductions, not all frontier basins are viable at the current price

Barents Sea

Eastern Canada

Eastern Mediterranean NW Africa

NE Latin America

< $30 $30-$50 $50-70

> $70

Onshore East Africa

Offshore East Africa “70% of pre-FID oil projects are commercial at $60/bbl” - WoodMac (July16)

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High exploration and development capex didn’t deliver the reserves or production growth IOCs were targeting. Production growth targets vs. production delivered

• In 2010 IOC set ambitious growth targets, (see chart) but: •

Exploration success fell short, sharply increasing finding costs

•

Increasing size and complexity saw project cost overruns and delays

•

Companies missed production targets by 1.9mmboe/d

(annual %)

• In 2015/16, 5 of the 7 companies set targets to sustain or grow production, but: •

Capital budgets have been reduced by 4050%, but costs are only down ~25%

•

Only 2.8 Bn barrels were discovered in 2015, the lowest annual volume since 1954

•

Frontier exploration has virtually stopped!

• Something has to change for these new targets to be met in a low price environment- but does Exploration have a role?

1

Targets set over different periods across different companies, actuals are for the period 2010-14 2 Target given to 2107 3 No time horizon given for target Source: http://www.strategicfit.co.uk/strategy/cost-cutting-not-enough-to-hit-ioc-growth-target/

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What does the industry need to make frontier exploration attractive? Where next for exploration? • More exploration in proven basins vs new technology in new basins? • More value has come from mature basins in the past

• How do we keep skills in exploration? • Avoid a repeat of demographic gap created by low activity in late 80-90s What can the industry do? Level of control for E&P companies

• Change working practices to reduce costs and improve efficiency? •

Further collaboration between companies and suppliers to drive improvement in efficiency

• Breakthrough technologies to fundamentally change commerciality of frontier resources •

Eg Ultra-deep water, harsh environments, deep/tight reservoirs, heavy oil

What can governments do? Incentives for exploration drilling Make more data available Increase licence flexibility Direct NOC activity in frontier areas

-

Tax breaks (Norway ) Seismic studies over certain areas (UK) Licence options, Irish Sea & Integrated EP contracts (Mexico) NNPC drilling in Chad basin (Nigeria)

At the present rate of exploration investment & discoveries a shortfall in supply will occur within the next 10 years Copyright © 2016 by StrategicFit. All rights reserved.

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