During these times of global economic uncertainty, political turmoil and climate change discussions, some, both inside and outside the energy industry, question the value of investing in oil and gas exploration. At the same time, new discoveries, technological advances and collaborative partnerships make exploration more exciting than ever.
ExxonMobil Exploration Company President Stephen Greenlee addressed these parallel perspectives during “The Future of Oil and Gas Exploration,” the annual Michel T. Halbouty Lecture he delivered at the AAPG Annual Convention and Exhibition in San Antonio in May.
“There are lot of people inside our industry and outside that are questioning the fundamentals of what we do in exploration,” he said. “There are some paradigms out there, and we need to talk about them.”
Greenlee listed six such paradigms and provided a response to each:
• Oil and gas demand is growing very slowly at best, and declining according to many, so why invest in new exploration?
Citing statistics from ExxonMobil’s Energy Outlook 2018, Greenlee argued that global energy demand actually continues to increase, not decrease.
“There has been consistent growth in societies’ need for energy,” he said, and projected a 25-percent increase in global energy demand by 2040.
Much of the growth comes from transportation – particularly commercial transportation, which is difficult to replace with other energy sources. Demand also comes from the industrial sector, which requires petrochemicals, and electricity, the world’s fastest growing energy requirement.
Greenlee acknowledged that, while oil and gas demand may increase at lower rates in the future, there will be significant increases in demand for renewable energy.
ExxonMobil projections estimate an approximately one-percent increase in demand for oil and gas between 2016 and 2040. In that same period, projected demand for renewable energy sources increases 200 percent.
• Additional supplies that might be discovered will exacerbate climate change and make it more difficult to achieve the objectives of the Paris Climate Accord.
Greenlee noted that producing additional resources does not immediately expand energy use worldwide; it first helps to replenish existing supplies currently being expended and to replenish resources being depleted in current fields. If companies stop exploring, global supply will not stay stagnant – it will decrease.
“This is a depletion business,’” he said. “We must always be investing in new supplies, not just to avoid decline, but to grow.”
He argued that, even if companies and countries follow the Paris Accords on Climate Change and decrease carbon dioxide emissions by two percent by 2040, companies still will need to find new energy sources to keep up with global demand, he said.
• We’ve discovered more oil and gas than we need – new supplies will just be left in the ground.
Greenlee noted that, while the world finds itself in an era of resource abundance, not all known resources will be produced any time soon. Considering the cost and complexity of production, some resources may be better left in the ground.
“By 2040 we will have produced a little over half of the oil and gas that we believe exists in the planet today, but not all of it makes sense to develop,” he said. “It’s incumbent upon us in the exploration business to find additional resources to develop. Adding that high-quality undiscovered resources will help meet near-term demand.”
He added that, while more than 50 percent of all current oil and gas discoveries will be produced by 2040, the industry needs more than 85 percent of them to be produced to keep up with global demand.
• Abundant and profitable (United States) domestic unconventionals can fill reserve and volumes requirements.
Greenlee acknowledged that abundant tight liquids have good economics and enable short-cycle investment, and that economics have changed the world and made the United States a swing producer in liquids in the world today.
He added, however, that while tight oil and unconventional gas production will grow in the next few years, it still represents a small percentage of the overall mix. He projected 13 percent of global liquids production coming from unconventionals by 2040.
“Unconventional exploration is super important but it’s not the solution of the overall problem,” he said. “We are going to need current and new conventional discoveries as well.”
• Why take the exploration risk when the cream of the world’s most prospective basins has already been produced?
Greenlee described the current environment as a “global age of exploration opportunity” and shared that ExxonMobil has had captures in 35 countries since 2009.
“When you think of the things that have been made available to us over the last 10 years, when you think of Mexico, Brazil, East and West Africa, the Eastern Mediterranean, these are world-class exploration plays, and many of them were not accessible before,” he said. “They’ve come not only with great geological potential but also really good terms that have made it possible for us to do massive exploration campaigns,” he said.
Exploration in new areas is only part of the story, he said. While many important discoveries have come in new areas, others have come in areas that were available for many years.
He noted how more than 200 dry holes were drilled in Guyana before ExxonMobil made its first discovery.
Equinor changed the North Sea with a multi-billion-dollar discovery made in a mature, previously producing area.
The Zor discovery came from an area were ExxonMobil had acreage previously.
“Teams applied a new concept, same data, better imaging,” he said. “With new technologies and bright ideas there are tremendous opportunities out there.”
• Exploration is a terrible growth strategy and destroys shareholder value.
Greenlee also responded to the opinion that significant investments in exploration have not brought financial benefits to companies.
“There was a period in the last 10 years where we destroyed a lot of shareholder value,” he said. “When prices were high and growing we got sloppy. We were finding less oil and drilling with rigs that were crazy expensive,” he said.
Now companies are reversing that trend, he said. “Today we have gotten more deliberate. We are drilling less costly wells and operating in areas with better fiscal terms.”
Greenlee shared how companies like ExxonMobil are diversifying their growth strategies, blending conventional and unconventional exploration and acquisition.
“We can’t grow with purely exploration or purely conventional exploration; we need a variety of strategies. We can’t let any of those go as we move into the future,” he said.
Greenlee said companies should use exploration opportunities to high-grade the investment portfolio and grow market share. When reducing costs, they should rely on exploration for quality, not for volumes.
“It’s all about quality, rocks and fiscals,” he said.
Factors for Success
Greenlee identified four key assets that determined if companies are successful and competitive: people, data, technologies and partnerships. Those are what define the future of our companies.
The first is people.
Greenlee said having well-rounded employees is critical to a company’s success.
“We are asking a lot of explorers today. We can’t have explorers be unimodal. They need to have experience in all upstream and in the whole value chain. They need to know what customers want from exploration. They need to have meaningful experience in development and production. They need to understand how we make money, they need to be motivated and they need to work in a culture that encourages inclusive debate,” he said.
He next identified data as a foundational asset for any company.
“Data is an asset but difficult to find,” he said, emphasizing the importance of digitizing and saving data and making it searchable and usable.
“Data capture and manipulation is not sexy and not something everyone wants to do but it is critical,” he said.
“Wallace Pratt said ‘oil is found in the minds of men,’ but nobody finds much oil when they can’t get a hold of their data,” he explained. He added his 21st-century interpretation of the quote: “Oil is found in the systems of companies who have all their data systemized.”
Third, Greenlee identified technology as the future of exploration.
“Technology has been fundamental in determining what we can do as geoscientists. It opens new realms, like getting to 4,000 feet,” he said. “It’s hard to catch up when you don’t have the technology toolkit in your company.”
The final success factor, equally important but often minimized, he said, is partnerships.
“When we go in to any country we are asking that resource power to put their resources under our stewardship,” he said. “Most of the time the time frame is much longer than any single political cycle.”
Greenlee noted that companies ask a lot of local leaders who often face scrutiny for every document they sign.
“We are asking a lot of them; we are asking them to help us move forward,” he said. “On the other hand, we invest millions or billions of dollars of shareholder funds before we earn a nickel in revenue from production, so each of us has a huge ask. We’re trying to put together an offer, and they are trying to put together an offer, and we are trying to find common ground.”
Greenlee noted that 50, 60, 70-year partnerships are a very important part of the explorer’s duty because explorers are the first company representatives to enter a new country.
“We need to train our future explorers in the idea of building these future partnerships,” he said.
Exploration is very important to companies today and will be even more important in the future, Greenlee concluded.
He encouraged companies to continue to invest while ensuring that exploration dollars are diversified across projects.
“You need to have enough things going on that a disaster in one area won’t affect the company as a whole,” he said.
He expressed excitement about projects in Guyana, Brazil and Africa
“I’m really looking forward to getting the drill bit in, in the years to come,” he said.
He said exploration companies should strive to grow a business focused on building partnerships and creating value to meet the world’s energy needs.
“Success in exploration is critical to meeting society’s demand,” said Greenlee.
Meeting these demands requires a qualified workforce of professionals trained in geoscience, he said.
“The whole idea that we are in a sunset industry, that lower investment is going to destroy the industry, couldn’t be further from the truth,” he said. “There is a tremendous and exciting future for those who make a decision to study geoscience.”