July 17, 2017
Author: Aatisha Mahajan, Exploration Analyst, Rystad Energy
Scarce geological information and reduction in exploration investments, a major hindrance in exploiting the resource potential of the Russian Arctic Shelf.
Since 2014, after the discovery of Universitetskaya-1 in the Kara Sea, the offshore exploration spending has fallen dramatically by 90% in Russia (Figure 1a). The exploration cost fell from 1.8 billion USD in 2014 to around 170 million USD in 2015, an evident impact of fall in oil prices, sanctions, and Ruble deflation. The decrease in exploration spend is also due to reduced activity in western Russian shelf, i.e. the Kara Sea and the Barents Sea, where operation costs are very high. Offshore exploration was active at comparatively low-cost operational areas in the Baltic and Okhotsk Sea. There have been no significant discoveries since 2011, Universitetskaya-1 being an exception. New discoveries accounted for around 200 million boe in total from 2015 and 2016.
Historically, the exploration trend in Russia has been switching from mature oil and gas areas to frontier provinces. First, it was the Volga-Urals, then the Western Siberian. However, the current reserve growth in Western Siberian is mostly through enhanced oil recovery techniques rather than new discoveries, and thus, exploration focus now needs to shift further north towards the underexplored Arctic continental shelf, which holds unconstrained resources. The shift is in harmony with the global trend of decline in easy oil and change to the more expensive and geologically complex areas. Hence, the question arises what restrains an increase in exploration activity offshore at the current oil price.
Rystad Energy estimates around 90 billion boe of undiscovered hydrocarbon resources in Russia (Figure 1b), out of which 40% lies in the Kara Sea and 37% in the Barents Sea. Both these regions have dense 2D seismic coverage and an established working petroleum system by discoveries such as Shtokman and Prirazlomnoye. In addition, increasing activity in the Norwegian Barents Sea adds to the regional geology picture. However, the Eastern Siberian region including the Chukchi and the Laptev Sea have a very poor data coverage in terms of both 2D seismic and wells, which is why Rystad Energy’s yet-to-find estimates are heavily risked down and represent only 10 % of the total undiscovered potential. Despite high operational costs in the initial stage, the size of discoveries in these regions clearly indicates western Arctic shelf will play a crucial role in the Russian hydrocarbon exploration in the near future.
Reduced investment in exploration compels companies to consider more than the lure of high volumes, but to turn their focus to areas where government support and tax incentives increase the profitability of those discoveries which are made. . Furthermore, under current Russian law, private companies cannot have operating permits in Arctic waters, which also curbs the scope of investment in the Russian Arctic. After easy discoveries in the mature Western Siberian basin, this put Russia in a fix as all frontier regions are offshore, under-explored and require high investment. With economic and legislative restrictions it seems exploration capex will remain low at least until 2019.
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Contact: Aatisha Mahajan, Exploration Analyst
Phone: +47 24 00 42 00
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Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products.
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