The Year of Discovery Saw Few Surprises

A year of anticlimax

In international exploration, the new normal is starting to look like the old normal.

And 2014 looked a lot like the year before.

“Our sense is, like 2013, it wasn’t a standout year. The issue is that we had three years of standout volumes. So 2009 to 2011 were just remarkable years,” said Julie Wilson, senior exploration analyst for Wood Mackenzie in Houston.

The past year in exploration appeared to represent “more of a return to normal, to more typical years,” she said.

Not that there weren’t some meaningful exploration wells, even important wells. But the world didn’t see a bust-out of big, surprising, high-volume discoveries.

Mostly, it got a healthy dose of modest discoveries.

“One of the trends we’re seeing over the last few years because of smaller volumes is that commerciality is becoming more of a problem,” Wilson said – something that won’t improve with lower production prices.

Also, fewer big discoveries mean less follow-up exploration and fewer follow-on finds.

“It almost like a satellite discovery without a hub,” Wilson noted. “You need a hub first.”

The Polar Express

Russia’s Rosneft might have brought in the most meaningful well of the year when it declared victory with its Universitetskaya-1 discovery in the Arctic Kara Sea, drilled with partner ExxonMobil.

The well, in the East-Prinovozemelskiy-1 license area, reached a depth of 6,932 feet in 266 feet water depth and opened up estimated recoverable field reserves of 130 million tons (950 million barrels) of oil and 338 billion cubic meters (17.7 trillion cubic feet) of gas, according to Rosneft.

“What was interesting there is that there’s significant liquids volume,” Wilson said. “Clearly, it is a significant structure.”

Russia promptly named the new field Pobeda, meaning “Victory.”

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In international exploration, the new normal is starting to look like the old normal.

And 2014 looked a lot like the year before.

“Our sense is, like 2013, it wasn’t a standout year. The issue is that we had three years of standout volumes. So 2009 to 2011 were just remarkable years,” said Julie Wilson, senior exploration analyst for Wood Mackenzie in Houston.

The past year in exploration appeared to represent “more of a return to normal, to more typical years,” she said.

Not that there weren’t some meaningful exploration wells, even important wells. But the world didn’t see a bust-out of big, surprising, high-volume discoveries.

Mostly, it got a healthy dose of modest discoveries.

“One of the trends we’re seeing over the last few years because of smaller volumes is that commerciality is becoming more of a problem,” Wilson said – something that won’t improve with lower production prices.

Also, fewer big discoveries mean less follow-up exploration and fewer follow-on finds.

“It almost like a satellite discovery without a hub,” Wilson noted. “You need a hub first.”

The Polar Express

Russia’s Rosneft might have brought in the most meaningful well of the year when it declared victory with its Universitetskaya-1 discovery in the Arctic Kara Sea, drilled with partner ExxonMobil.

The well, in the East-Prinovozemelskiy-1 license area, reached a depth of 6,932 feet in 266 feet water depth and opened up estimated recoverable field reserves of 130 million tons (950 million barrels) of oil and 338 billion cubic meters (17.7 trillion cubic feet) of gas, according to Rosneft.

“What was interesting there is that there’s significant liquids volume,” Wilson said. “Clearly, it is a significant structure.”

Russia promptly named the new field Pobeda, meaning “Victory.”

Rosneft later said about 30 structures were found in three East Prinovozemelskiy areas of the Kara Sea, with a combined total resource base estimated at 13 billion tons of oil equivalent.

Because of Western sanctions against Russia, ExxonMobil began pulling back from its ventures with Rosneft, and timing for the new discovery’s development was uncertain.

However, Pobeda signaled a big step forward for Arctic exploration. Several companies also reported discoveries, mostly small, in parts of the Barents Sea. At 130 million tons of oil, the Pobeda field would be significantly larger than Statoil’s 2011 Johan Casterberg discovery in the western Barents Sea.

Another Arctic project under way is Gazprom’s Prirazlomnoye field, which is already producing and contains an estimated 72 million tons of oil reserves, according to the company.

One thing that didn’t happen in 2014: Shell didn’t drill in U.S. Arctic waters on its leases in the Beaufort and Chukchi seas. Wilson predicted exploration there would move forward at some point.

“I think Shell and others will eventually drill in the Arctic on the U.S. side,” she said, “and also in the Canadian Arctic.”

Another Opening

A pair of discoveries offshore Senegal opened a new play in that area, where Cairn Energy PLC, ConocoPhillips Co. and FAR Ltd. are exploring as joint venture partners. Senegal’s national oil company Petrosen also has a 10 percent working interest.

Their FAN-1 well on the Sangomar Deep block targeted multiple, stacked deepwater fans and found oil pay in Cretaceous sands. The well was drilled to a target depth of 16,165 feet, about 62 miles offshore.

The partners later announced a second light oil discovery on the block, with the SNE-1 wildcat hitting an Albian sandstone reservoir.

“The play-opening discovery offshore Senegal was very good news for that margin, which hasn’t had a lot of good news lately,” Wilson noted.

She said success offshore Senegal portends more exploration in the northern reaches of the west African offshore provinces, especially off Mauritania.

Eni S.p.A. and Shell reported good discoveries offshore Gabon and the Congo in 2014.

Eni S.p.A. estimated a discovered total of 1 billion barrels of oil equivalent, 80 percent crude, in a Lower Cretaceous presalt sequence on the Marine XII block offshore Congo.

“To me, the west African presalt discoveries in the Congo and Gabon were encouraging,” Wilson said, “but there’s a caution in the modest size of the discoveries and the gas content.”

Wilson identified another new play area as a sleeper – a discovery that hasn’t gotten a lot of headlines.

“Much smaller and possibly overlooked, the other play-opener was Paraguay,” Wilson said.

President Energy’s Lapacho well in Paraguay’s Pirity Basin discovered two conventional oil pay zones in the Devonian Icla formation at 3,926 meters. It was the first oil discovery in the Paraguayan Chaco, according to the company.

Wilson said the pay is likely an extension of an Argentinian trend. Reservoir potential had not been evaluated but earlier the company said the discovery could be a stand-alone commercial producer.

President Energy has a 64 percent interest in the Pirity block and Petro-Victory Energy Corp. a 36 percent stake.

Around the World

Wilson has specialized in both Latin America and Gulf of Mexico research. She worked for BP for eight years in London and Aberdeen before joining Wood Mackenzie.

After 11 years with the firm she joined its Exploration Service team. She now advises clients on global industry issues, with a focus on exploration strategy and performance.

As she continued her assessment of the past year she mentioned three other areas of interest in international exploration: Colombia’s deep water, offshore Malaysia and the Gulf of Mexico.

Petrobras, with partners Ecopetrol and Repsol, announced the first discovery in Colombian Caribbean deep water with the Orca-1 exploratory well in the Tayrona block, about 25 miles off the coast of La Guajira.

The well was drilled in 2,211 feet water depth and found a sizable accumulation of natural gas at about 12,000 feet.

“That’s another hot area that we’re excited about and that operators are excited about,” Wilson said.

An accumulation of gas discoveries offshore Malaysia boosted that country’s production potential. Shell’s Rosmari-1 and Marjoram-1 well were both major gas discoveries on Malaysian block SK318.

“It is not a huge discovery story, but Malaysia has seen a string of good discoveries. Discoveries in Malaysia total over a billion barrels of oil equivalent,” Wilson commented.

In the Gulf of Mexico, Chevron said its Keathley Canyon Block 10 Well No. 1 discovered significant oil pay in the Lower Tertiary Wilcox Sands at the Guadalupe prospect.

The well was drilled to a depth of 30,173 feet in 3,992 feet of water, about 180 miles offshore Louisiana. Chevron USA and BP E&P each have a 42.5 percent interest in the Guadalupe well and Venari Resources LLC holds 15 percent.

“The Gulf of Mexico had a good year. We saw more success in the Lower Tertiary. Chevron’s Guadalupe discovery was quite encouraging,” Wilson noted.

She said positives for the Gulf of Mexico were:

  • Continued success in the Paleogene, the Upper and Lower Tertiary, “which needed a boost.”
  • More success in the Jurassic play by Shell, although other companies had yet to join in.
  • Infrastructure-led exploration by smaller companies.

Something’s Missing

Drilling offshore Angola, a hot discovery topic in 2013, met with added success last year. Discoveries continued offshore and onshore East Africa. More big wells were reported in the Kurdistan region of Iraq.

But an important part of the exploration story for 2014 was something else that didn’t happen. The world once again failed to add meaningful volumes of new hydrocarbon accumulations. Wilson said the lack of new discoveries in Brazil’s principal offshore basins was especially notable.

“The one thing that stands out for us was the lack of (exploration) drilling in Brazil, in the Santos and Campos basins,” she said.

“We can’t rely on Brazil to keep supplying big volumes if Petrobras is turning away from exploration to evaluation drilling and to other areas,” she added.

Maybe a shift toward evaluation work is inevitable, a new-normal response to recent history and today’s exploration conditions. At this point, some people would say that the last thing the world needs now is additional crude oil production.

And that’s not normal, at all.

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