Rare run of oil finds offers little respite offshore

Reuters (Reuters) Exploration firms have made a rare run of oil and gas discoveries in recent weeks as more targeted search strategies bear fruit, but they offer little respite to a sector that remains severely bruised by the oil price slump.

Global exploration and production (E&P) companies that scour frontier lands and seas in search of new energy reserves have had meagre success in recent years, putting many under pressure before a near halving of oil prices since last June.

Seven successful discoveries with potential to become commercial have been made so far in 2015 by explorers ranging from independents such as Premier Oil to majors including ExxonMobil, according to Anish Kapadia, Managing Director, International Upstream Research at Tudor, Pickering Holt and Co (TPH) investment bank.

Of the seven, all but one were made in the second quarter of the year.

By contrast, Last year saw a total of 10 new well discoveries, of which only 2 are estimated to be commercially viable, based on the TPH “Top 50ish” wells index.

“We haven’t had 6 discoveries in a single quarter for a long time,” Kapadia said.

“This year people are drilling a lot less as exploration spending has fallen sharply, so companies are focusing on higher quality projects,” Kapadia said.

The decline in oil price due in large part to growing production from U.S. shale production has led the oil and gas sector to slash budgets and their exploration programmes. 

“It is always a game of luck. But the luck was bound to change because the lack of success across the industry meant that people are taking less risk in a tighter market. With less money around they can do more technical work before actually drilling,” an industry source said.

Although the sector’s shares have recovered in recent months after a rebound in oil prices, investors remain wary with the outlook for oil prices unclear.

“A cautious investor base recognises the value of core producing assets, but is unconvinced about pre-development opportunities and focuses on the risks ahead rather than the upside opportunity,” analysts at Barclays said in a note, maintaining their view on the European E&P sector as neutral. 

Norwegian-based consultancy Rystad Energy says 2014 was the worst year on record for conventional oil and gas discoveries, with 78 with estimated reserves of 13.3 billion barrels of oil equivalent.

And despite the sharp rise in recent weeks, 2015 is expected to be even weaker, according to Rystad’s ECude database.

“For this year, there has been less activity and spending by oil companies due to the oil price collapse. Exploration is the first thing you look at to cut,” Rystad analyst Nils-Henrik Bjurstrøm said.

The latest discovery was announced this week at the Isobel Deep exploration well in the Falkland Islands by Premier Oil, Falkland Oil and Gas and Rockhopper, just weeks after the first discovery there.

Another was announced earlier this month at the Liza well in the Stabroek block 120 miles offshore Guyana, which is developed by a consortium including ExxonMobil, Hess and China’s CNOOC. 

(Reporting by Ron Bousso, editing by David Evans)

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