Explorers Facing Critical Decades

Maxted Says There's Lots of Oil Left to Find

Brian Maxted, one of his generation's most successful oil finders, has looked around the world and says plenty of work remains for companies and professionals willing to take on the challenges of exploration.

Maxted's remarks came during his Michel T. Halbouty lecture at the recent AAPG Annual Meeting in Dallas, when he reminded the audience that total discovered global liquid reserves are estimated at 1.9 trillion barrels, and that petroleum today accounts for about 60 percent of the earth's energy needs.

That trend will continue through about 2050, he said, when natural gas and associated liquids will increasingly be the fuels of choice.

"World oil yet to be found is estimated at 600 billion barrels, suggesting an ultimate potential resource base of 2.5 trillion barrels," said Maxted, who is founding partner of Kosmos Energy LLC and former executive with Triton Energy.

"On this basis, 25 percent of our worldwide oil endowment is still to be found — this is a lot of oil," he added. "Thus, the industry still has a significant future, with the next several decades being particularly important."

Of the total oil discovered, about 850 billion barrels — or 48 percent — have been produced. Production increased about 2 percent per year through the 1990s to 28 billion barrels a year in 2000.

By the end of the last millennium, conventional oil reserves had declined to approximately 1.05 trillion barrels, at a rate of 3 percent per year.

Extrapolating this trend suggests global oil production will peak between 2020 and 2030, he noted.

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Brian Maxted, one of his generation's most successful oil finders, has looked around the world and says plenty of work remains for companies and professionals willing to take on the challenges of exploration.

Maxted's remarks came during his Michel T. Halbouty lecture at the recent AAPG Annual Meeting in Dallas, when he reminded the audience that total discovered global liquid reserves are estimated at 1.9 trillion barrels, and that petroleum today accounts for about 60 percent of the earth's energy needs.

That trend will continue through about 2050, he said, when natural gas and associated liquids will increasingly be the fuels of choice.

"World oil yet to be found is estimated at 600 billion barrels, suggesting an ultimate potential resource base of 2.5 trillion barrels," said Maxted, who is founding partner of Kosmos Energy LLC and former executive with Triton Energy.

"On this basis, 25 percent of our worldwide oil endowment is still to be found — this is a lot of oil," he added. "Thus, the industry still has a significant future, with the next several decades being particularly important."

Of the total oil discovered, about 850 billion barrels — or 48 percent — have been produced. Production increased about 2 percent per year through the 1990s to 28 billion barrels a year in 2000.

By the end of the last millennium, conventional oil reserves had declined to approximately 1.05 trillion barrels, at a rate of 3 percent per year.

Extrapolating this trend suggests global oil production will peak between 2020 and 2030, he noted.

Two paradigms are important here, he said:

  • While a lot of oil has not yet been found, "we have already entered the mature phase of our industry," he said. "Our challenge will be to find this oil in order to defer and minimize the inevitable decline in production capacity, which is caused by demand outpacing new discovery."
  • Supply may be expected to tighten and there will be a sustained higher commodity price going forward — "and commodity price is the overarching driver of the upstream petroleum industry," he said.

Those Were the Days

Exploration trends in the 1990s hold a harbinger of future exploration, Maxted said.

Through the 1990s, total petroleum found in giant fields of greater than 500 million barrels of oil equivalent was 156 billion barrels of oil equivalent in 77 fields. Three times more gas than oil was found, and 60 percent of the new fields were in the Middle East.

Also, 40 percent of the giant fields discovered during the decade were in deep water, and 30 percent of new oil was found in Africa.

"Two other perspectives are important to recognize about exploration in the 1990s," he said:

  • The oil found in new giant fields during the decade was only approximately one-third of the total discovered in the 1980s.

    "This continued a prevailing trend that was established in the 1970s," he said. "The 1960s was the peak decade for giant new discoveries … by the 1990s the new giant oil fields represented only 25 percent of the total production."

  • The increasing importance of fields with a stratigraphic component to their traps; during the past 50 years, new finds with stratigraphic traps have increased from 10 percent to almost 40 percent.

Global oil and gas discoveries in the 1990s may be rationalized into four "business opening" themes, he said. These include:

  • New technology — including 3-D seismic and advances in drilling and production, which allowed the global exploration of the Tertiary deepwater delta systems.
  • New geography, which provided ideological change — particularly the opening of the former Soviet-bloc countries and the advent of international participation in OPEC countries.
  • Increasing oil prices — this could lead to the reopening of former exploration areas as well as new ones, including those in remote interior basins of continents or offshore rift/passive margins in high latitude regions.
  • Emerging gas/LNG markets — which has stimulated worldwide exploration for gas.

Also, new geology may through secondary exploration develop new plays and fairways in established petroleum provinces or open new areas, he added.

The Price Is Right?

So what does the future of exploration hold?

"We may have entered a new era with different characteristics relative to previous phases," Maxted said.

  • Strengthening oil prices in the late 1990s will likely continue, and the industry should plan its business on the assumption of strong, long-term commodity prices.
  • There has been a change in the relationship of oil prices, the stock market and E&P company share prices — E&P sector stock prices are not rising in line with recent oil price increases, he said.

"A disconnect is evident," he said. "I believe there are concerns about the potential for profitability due to cost pressures and continued anticipation of a price pull-back and company growth due to opportunity constraints and reinvestment ratios.

"So, should commodity prices remain high, and should the industry be able to manage costs, then its future will hinge on the ability to invest in new opportunities for reserves and production growth," he continued. "If we successfully achieve this, then E&P stocks should be robust.

That scenario will not be easy to achieve, he added. From a growth perspective, reserves and production for a large number of U.S. companies have been generally flat over the last five years and neither is expected to increase dramatically going forward — in fact, companies will continue to face the challenge of simply replacing reserves and production.

In the last six years, industry production costs have risen by more than 30 percent from an average of $10.65 per barrel of oil equivalent to $13.95, despite a major focus on reducing costs.

"Costs of current production may be expected to continue to rise," he said. "New, cheaper sources of reserves and production are required to dilute these average total unit costs."

World Vision

Of the 650 billion-barrel-USGS-estimate of global yet to find volumes of oil, 90 percent is outside North America. One third of the future finds are expected to be in the Middle East and North Africa with one fifth in each of the Former Soviet Union and South and Central America.

West Africa is expected to host one tenth of the world's undiscovered oil.

"Major oil and gas finds in the coming decade and beyond may be expected to be primarily focused in presently proved, developing and emerging petroleum provinces and their extensions," he said.

"Based on results to date, the current decade may potentially be a time of greater exploration success than the 1990s."

Again, the four themes that defined the 1990s will come into play, he said:

  • Technology will allow the ultra-deepwater fairways of the established Tertiary to Recent delta systems on the continental passive margins to be explored with success. These include the Mississippi, Niger, Congo and Nile delta systems. Also, new delta systems may be proven — the Amazon, for example. New deepwater continental margins may emerge as well — notably East Africa, India, northeast South America, the Caribbean, circum-Mediterranean and Australia/Southeast Asia for either oil or gas/LNG.
  • New geographies will continue to evolve and yield new giant fields, including OPEC countries like Libya and former disputed zones such as the Nigeria-Sao Tome Joint Development Zone in West Africa.
  • Higher prices could open additional new geography in such areas as continental passive/rift margins in the higher latitudes of the Arctic, northern Norway and northern Russia, as well as the interior, intra-cratonic rift basins of Africa and the fold/thrust/foreland basins of western South America, he said.
  • And then there's "new geology."

"(This) theme, in combination with one or more of the other primary themes I mention, has the most potential to impact future oil and gas finds by developing new plays and fairways in existing hydrocarbon systems and by opening new petroleum provinces," Maxted said.

"The growing challenge for the upstream petroleum industry continues to be consistent delivery and enhancement of value for company shareholders, partners and host governments by replacing and increasing reserves and production, and being able to do it at a competitive cost," he maintained. "For the exploration sector, the challenge is to establish a track record of successful performance, which will re-establish corporate and investor belief in the role and importance of exploration to establish, sustain, renew and build E&P companies.

"Exploration performance means finding what we say we are going to find and meeting expectations by delivering on predictions."

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