Monday, May 27, 2019

Update On Conventional Exploration; The Case For A Mix Of Conventional/Unconventional Exploration; The Impact Of The "Halo" Effect -- May 27, 2019

Over the past couple of years there has been some discussion about the lack of CAPEX allocated for conventional exploration.  I have a fairly long post with updates regarding all the hand-wringing about "decreased conventional discoveries" and how that will lead to a scarcity of oil in the "near future." Some refer to this as "peak oil."

At that post, two graphics:

At the time, Don sent the link to this article from Bloomberg: Chevron posted the strongest year of crude discoveries since 2011.

Now, rigzone has an update regarding this issue, apparently now called "high-impact exploration."

From the article:
Large oil and gas companies are commanding a greater role in high-impact exploration, but a lack of depth in the quality of global drilling opportunities diminished their performance in 2018, Westwood Global Energy Group reported Friday.
According to Westwood, a “twin track strategy” driving the industry comprises:
  • Increasing short-cycle exploration over the period in mature basins with existing infrastructure [unconventional in Permian, Bakken, Eagle Ford?]
  • Continuing to hunt for new petroleum provinces, particularly in deep water.
Also, Westwood noted that companies are moving away from sub-Saharan Africa and other onshore frontier drilling opportunities that can take considerable time – in some cases upward of 16 years – to commercialize.
Challenges above-ground include lack of infrastructure and political/regulatory hurdles, the consultancy added.
Other report findings include:
  • Compared to the previous year, exploration drilling in 2018 was up nearly 30 percent but yielded poorer performance with fewer big discoveries and a lower commercial success rate.
  • From 2014 to 2018, high-impact drilling discovered volumes were down 50 percent overall against results from the preceding five-year period.
  • High-impact drilling should increase 20 percent in 2019 to approximately 80 wells, with more wells planned in maturing and mature plays such as North West Europe and Mexico.
  • More than 50 percent of high-impact wells for 2018 and more than 70 percent for 2019 involve supermajors; in contrast, the supermajor participation rate for 2015 was 34 percent.
  • this report gives some credence to those who suggest "peak oil" is still on the table
  • at the corporate level, it appears a combination of unconventional and conventional exploration is the best strategy
  • shale: short-cycle
  • deepwater: high-impact 
I'm curious. I had not seen that term before, "high-impact exploration." Let's see what google has to say.

It appears that "high-impact exploration" refers to deep water exploration but I don't know when the phrase was first used.

However, this article by Hart Energy back in 2013 is quite interesting. The entire article is worth reading (slowly). From an article like this it is best not to post one data point, but, against my better judgement, here it is (remember this article was written in 2013):
For example, a Bakken project may have a breakeven in the $50 per barrel range, versus a large discovered Gulf of Mexico field with a breakeven around $15 per barrel. In this instance, a 20% change in the volume of the GOM field may result in a 30% change in NPV, but a 20% change in well EUR in the Bakken will swing the NPV plus or minus 110%.
This is why I find the "halo-effect" or the "parent-well-uplift" phenomenon so interesting: "...  a 20% change in well EUR in the Bakken will swing the NPV plus or minus 110%."


  1. Interesting that you post this. I have been researching the possibility of starting an exploration company. I have been looking at areas south of Dickinson, as there are a fair number of old wells that were never produced, but did have oil shows in the Madison and Red River formations, among others. I have contacted a few companies to see if they would be interested, but so far, none are. I have also been looking at funding possibilities, to see if I could make something work on my own if I can’t find a company to work with.

    1. There will be (already is) a big demand for conventional oil; the problem in the Bakken right now would be finding "room" in the pipeline.