Although unfavorable market conditions with lower but slowly improving oil prices left E&P companies’ exploration budgets battered in 2017, the year still managed to bring a few notable gems that put exploration into the positive spotlight.
ExxonMobil Corp. (NYSE: XOM) picked up where it left off in 2016 offshore Guyana with its Liza discovery in the Stabroek Block, adding more resources to the mix this year. The company kicked off the year with the Payara-1 well discovery, following up about six months later with news of more oil discovered at Payara. In between came news of the company’s third oil find, Snoek, on the block. This was followed in October by yet another discovery—Turbot—bringing the total gross recoverable resources on the block to up to an estimated 2.75 billion barrels of oil equivalent (Bboe).
But that wasn’t the only major exploration news to unfold in what turned out to be hot areas for activity or attention by industry players.
Mexico said state-run Pemex made its biggest onshore oil discovery in 15 years in November when the Ixachi well struck oil in Veracruz. Original volumes in place were estimated at about 1.5 Bboe.
Offshore Mexico, Talos Energy and partners Sierra Oil and Gas and Premier Oil hit up to an estimated 2 billion barrels of light oil in shallow water offshore Mexico with its Zama-1 well.
Reservoirs beneath Mexico’s shallow water were also good to Eni, which raised its resource estimates of the Amoca Field to 1 Bboe in place and the Area 1 estimated resource base to 1.3 Bbbl of oil in place.
Action also heated up on Alaska’s North Slope where Repsol and partner Armstrong Energy celebrated a massive oil find in March in the Nanushuk Play. With 1.2 billion barrels of recoverable light oil, Repsol and Armstrong claimed the discovery was the "largest U.S. onshore conventional hydrocarbons discovery in 30 years."
So what could be in store for 2018? Shuqiang Feng, the upstream director for Stratas Advisors, shared insights on exploration spending and hot spots with Hart Energy.
Hart Energy: Exploration spending by oil and gas companies plummeted during the downturn as many cut back on spending. But now that oil prices are climbing up, are more companies stepping up exploration plans? How much is exploration spending expected to increase in 2018?
Feng: Even though the oil prices are recovering, we have not seen a quick recovery of companies’ exploration spending in 2018. Oil companies are still in the budget-cutting mode in terms of exploration. Anadarko announced 2018 budget on exploration and LNG development of only $350 million for 2018, more than 50% down from 2017 budget of $770 million. Chevron’s exploration budget in 2018 pretty much remains the same as $1.1 billion ($1 billion in 2017 budget). Companies’ capital spending will still focus on existing assets and ongoing new developments. Until oil companies start generating larger cash flows with sustainable higher oil prices, it’s less likely for them to start jumping on aggressive exploration activities.
Hart Energy: Internationally, few can argue that all eyes were on ExxonMobil’s discoveries offshore Guyana. Will the New Year bring more exploration offshore Guyana? What about to nearby Suriname? Are success stories developing there?
Feng: Guyana—After five discoveries offshore Guyana in the same Stabroek Block, Exxon plans to do further exploration drilling in 2018 in the multiple leads already identified.
The other two blocks in Guyana which might have exploration drilling in 2018 is the Tullow-operated Orinduik Block and the Repsol-operated Kanuku Block. 3-D survey acquisition was completed in September 2017 in Orinduik, and Total got in an option agreement with Eco Atlantic to acquire a 25% working interests of the block. 3-D survey acquisition was also completed this year in the Kanuku Block, and Repsol sees Kanuku as a good prospect for medium-sized discoveries up-dip from the Liza trend.
Suriname—Exploration drilling continues in 2017 in Suriname; however, no successful stories yet.
Tullow is active in Suriname, but the wildcat Araku-1 drilled on Block 54 this year came out uneconomical. However, the setback is not likely to kill the company’s interests in the Guyana Suriname Basin, as the company shifting focus to Guyana in 2018.
Kosmos Energy owns two blocks (42 and 45) in Suriname and plans to drill two prospects there.
Apache has also been active in Suriname, but so far has hit two dry holes in Block 53, Popokai-1 well in 2015 and Kolibrie wildcat this year. Apache also owns the exploration Block 58, where a 3-D survey was done earlier this year. Potential exploration drilling exists in 2018.
ExxonMobil acquired Block 59 in Suriname this year and is starting initial exploration activities there. Statoil and Hess are the other two partners in Block 59. Statoil also acquired a block (Block 60) in Suriname in 2017.
Hart Energy: What other exploration hot spots could be in store for 2018?
Feng: As companies are expected to continue to tie up their spending budget, new emerging hot exploration spots are rare, at least in 2018. However, there are spots that will continue to be active on exploration in 2018 as they were in 2017.
Barents Sea offshore Norway—Statoil, Aker BP and Lundin are active in Barents Sea offshore Norway in 2017, but the drilling results are very disappointing this year. The companies are planning to continue to explore there in 2018, but most likely with similar activity level as 2017.
Eastern Mediterranean Sea—Encouraged by the big Zohr gas discovery in the Mediterranean Sea offshore Egypt, Eni and other oil companies are expected to continue to drill for the next big find in the area, especially offshore Egypt and Cyprus. In Cyprus, Total and Eni plan to drill in Block 6 in 2018, and QP and Exxon plan to drill in Block 10 in 2018.
West Africa’s Mauritania and Senegal—Interest in this overlooked offshore area increases since big discoveries were made by Cairn Energy and Kosmos Energy. Majors are getting into the area, BP partnered with Kosmos Energy in Senegal in 2016; ExxonMobil is close to signing a deal to explore for oil and gas offshore Mauritania; Total acquired new deepwater acreages in Mauritania in 2017. Tullow and Kosmos Energy have been active players in the area for years. Exploration drilling in the area is expected to remain active in 2018.
Hart Energy: What factors will determine whether exploration takes off in these areas, and what could derail plans?
Feng: Encouraging results of exploration drilling and a sustainable oil price above $60 per barrel will help to lock up the exploration spending in these new offshore deepwater frontiers. A further setback of the oil price will further deteriorate oil companies’ cash flow, thus cut deeper on exploration budget in 2018 and postpone their exploration drilling plans.
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