Global oil firms, hit by one of the worst years for discovery in two decades, are about to cut exploration spending, pulling back from frontier areas and jeopardising their future reserves, industry insiders say.
Notable exploration failures in high-profile places such as Africa’s west coast, from Angola all the way up to Sierra Leone, have pushed down valuations for exploration-focused firms and are now forcing oil majors to change tack.
“It is becoming increasingly difficult to find new oil and gas, and in particular new oil,” says Tim Dodson, the exploration chief of Statoil, the world’s top conventional explorer last year.
“The discoveries tend to be somewhat smaller, more complex, more remote, so it is very difficult to see a reversal of that trend,” Dodson told Reuters. “The industry at large will probably struggle going forward with reserve replacement.”
Although final numbers are not yet available, Dodson said 2013 may have been the industry’s worst year for oil exploration since 1995.
As a result, exploration will probably be cut, especially in the newest areas, said Lysle Brinker, the director of energy equity research at consultancy firm IHS.
“They’ll be scaling back on some exploration, like the Arctic or the deepest waters with limited infrastructure … So places like the Gulf of Mexico and Brazil will continue to see a lot of activity, but frontier regions will see some scaling back,” he said.
Oil majors, which have a large resource base to maintain, are suffering the most, as the world is running out of very large conventional oil fields, and access to acreage, particularly in the Middle East, is limited.
That is leaving them with an increasing number of gas projects.
“When you look at the mix of oil and gas of the majors, it is definitely moving towards gas – simply because they can’t access conventional oil, which ultimately I believe will have an impact on oil prices,” said Ashley Heppenstall, the CEO of Sweden’s Lundin Petroleum, which co-discovered Johan Sverdrup, the biggest North Sea oil field in decades.
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