Oil discoveries slump to 60-year low
Discoveries of new oil reserves have dropped to their lowest level for more than 60 years, pointing to potential supply shortages in the next decade.
Oil explorers found 2.8bn barrels of crude and related liquids last year, according to IHS, a consultancy. This is the lowest annual volume recorded since 1954, reflecting a slowdown in exploration activity as hard-pressed oil companies seek to conserve cash.
Most of the new reserves that have been found are offshore in deep water, where oilfields take an of average seven years to bring into production, so the declining rate of exploration success points to reduced supplies from the mid-2020s.
The dwindling rate of discoveries does not mean that the world is running out of oil; in recent years most of the increase in global production has come from existing fields, not new finds, according to Wood Mackenzie, another consultancy. Additionally, there has been a predominance of gas, rather than oil, in recent finds.
But if the rate of oil discoveries does not improve, it will create a shortfall in global supplies of about 4.5m barrels per day by 2035, Wood Mackenzie said.
That could mean higher oil prices, and make the world more reliant on onshore oilfields where the resource base is already known, such as US shale.
Paal Kibsgaard, chief executive of Schlumberger, the world’s largest oil services company, told analysts last month: “The magnitude of the E&P [exploration and production] investment cuts are now so severe that it can only accelerate production decline and the consequent upward movement in [the] oil price.”
The slump in oil and gas prices since the summer of 2014 has forced deep cuts in spending across the industry. Exploration has been particularly vulnerable because it does not offer a short-term pay-off.
ConocoPhillips is giving up offshore exploration altogether, and Chevron and other companies are cutting back sharply.
The industry’s spending on exploring and appraising new reserves will fall from $95bn in 2014 to an expected $41bn this year, and is likely to drop again next year, according to Wood Mackenzie.
In spite of the decline in activity, the total combined volume of oil and gas discovered last year rose slightly, but the proportion of oil dropped from about 35 per cent in 2014 to about 23 per cent in 2015.
The two largest finds of last year, Eni’s Zohr field off the coast of Egypt, and Kosmos Energy’s Greater Tortue off Mauritania and Senegal, both hold gas.
Bob Fryklund of IHS said: “We’ve hunted a lot for oil over the years, and now the areas that are oil-prone are fewer than the areas that are gas-prone.”
Claudio Descalzi, chief executive of Eni, in March described exploration as the “foundation of our growth”, but the company is unusual among large international oil groups.
In 2008-15 Eni’s oil and gas discoveries, mostly gas, were 2.4 times its production, compared to just 0.3 times on average for other large European and US oil companies.
Some in the industry argue that there are plenty of large new oilfields waiting to be discovered.
Jonathan Faiman, chairman of Neos, which collects and analyses geological data for oil companies and governments, said that the slump in exploration budgets created “huge opportunities” for those that were brave enough to invest during the downturn in the cycle.
He added: “We are confident that large onshore fields with low lifting costs have yet to be identified.”