The Exploration StrategyConference, organized jointly by Rystad Energy and GeoPublishing, brings together the exploration focused North Sea community to exchange expert insight, network with fellow peers and develop discussions and solutions on current industry issues.
Date: November 1-2, 2016 Location: Stavanger, Norway
• NCSAtlas: provides monthly up-to-date information on licenses and field activities on the Norwegian Continental Shelf, including area-by-area reviews, exploration drilling activity, reserves/resources benchmarks, production profile outlooks and monthly feature topics (e.g. asset transaction).
NCSAtlas Insights June 2016 • Round 23 awards • NCS active players overview
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Disappointing exploration success Exploration at the NCS was successfully revived with the introduction of APA rounds and cashback in 2003 and 2005, respectively. However, following several prosperous years between 2010-2012, discovered resources on the NCS have been only moderate (Figure 1). Although the number of wildcat wellbores increased from 32 in 2012 to 46 in 2013, total discovered volumes went down. The discovered resources in 2014 were only slightly above the 2013 level thanks to the Alta discovery, and 2015 turned out to be a very disappointing year. Despite the number of wildcat wellbores being only 11% down compared to the peak in 2013, total discovered volumes amounted to only 230 MMboe, with Julius in the Central Graben, operated by Statoil, being the biggest discovery in 2015. In 2016, 13 wildcat wellbores have been drilled as of the end of May, but only around 20 MMboe have been discovered so far.
From a statistical point of view, two main parameters can be used to measure exploration success: 1. Success ratio and 2. Discovered volumes per successful wildcat. On the NCS the success ratio (share of wildcats encountering hydrocarbons, shows excluded) has been stable around 50% since 2010. In the same period, average discovered resources per successful wildcat well have dropped from over 120 MMboe in 2011 and 60 MMboe in 2012 to below 20 MMboe in 2015 and ~10 MMboe in 2016 YTD. This indicates that the size of an average discovery on the NCS currently is sub-commercial and clearly illustrates that a challenge for the future is to discover material accumulations that can be commercial as tie-ins in mature areas and standalone developments in new areas.
Exploration creates value On the business side, recent value creation from exploration on the NCS has been considerable. Rystad Energy has estimated the accumulated value creation multiple per year on the NCS as the relationship between the value of discoveries in the discovery year and the exploration investments after tax (Figure 2). The clear conclusion is that considerable value has been created from exploration on the NCS. Only in the dismal year 2015, the value of discoveries was less than the exploration investments. The analysis also shows that during the years since 2010, more than half of the exploration companies on the NCS have created value by discovering assets worth more than their investments after tax.
Buyers’ market A portion of the created value has already been realized through transactions involving discoveries. The asset transaction market is however exposed to industry cycles, and is currently a “buyers’ market” (Figure 3) as the observed transaction values have dropped from around 4 USD/boe to a level not covering the average exploration cost. Once we see an upturn in the oil and gas markets, transaction values are, however, likely to again enable profit generation through exploration and farm-outs on the NCS.
The future is bright Despite the recent disappointments, there is enormous value yet to be realized on the NCS. Forecasted exploration results on the NCS three decades ahead clearly demonstrate that exploration activity will be high for many years to come (Figure 4). Rystad Energy estimates that some 15-20 billion boe are yet to be found, and yearly exploration results over the next 20 years could be similar to what we have seen in the last 15 years, roughly 600 MMboe per year. The Barents Sea will be the key exploration province, but exploration activity will continue both in the Norwegian Sea and in the North Sea.
At NCS Prospects we will discuss the best strategies to realize this potential and make connections that will enable us to monetize on the discovered values.