The oil and gas industry is on track to discover just 4.7 billion barrels of oil equivalent (boe) by the end of 2021, its worst performance in 75 years, according to the research firm Rystad Energy. The shale resource plays have just about ki---d all the conventional exploration. Plus it looks like no one is cranking up that part of the business even though it will be needed in the not so distant future. Just to remind everyone the world consumes close to 100 million boe per day or over 36 billion boe per year. Something is going to have to give.
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The core reason behind industry's flailing exploration efforts is the unconventionals. A dozen or so years back Industry made the conscious decision to divert funding away from exploring to the development of known shale fields.
At first glance, it seemed like a no brainer. Why spend $billions on an exploration program and wait years for a discovery to be brought on stream when you can exploit an already known resource right in the middle of existing infrastructure? The wells are relatively cheap, cashflow is nearly immediate and, perhaps best of all, vast reserves can be booked and borrowed against right away.
Yet, in hind sight, we know now the margins are tight and exploitation is too easy. So easy that every oil company can do it. And they did, leading to over production, price collapse, mass bankruptcies and layoffs. Worse, those basic conditions haven't changed, they've just become more complex with the added issues of renewables and economic uncertainty.
Frankly, there isn't an easy solution. Oil prices that get too hot will simply trigger more unconventional drilling and another price crash, all long before any major shift in exploration funding occurs. Similarly, downward price pressure from renewables or slackening demand will push oil prices lower, slash drilling and lead to a future supply shortage and subsequent price surge. And repeat.
The industry has always been cyclical. The unconventionals have simply shortened the cycle time, leaving little room for exploration to become a factor. The brackets on the cycles are now just tighter and faster.
If you stay in this industry buckle up. It's going to be a bumpy ride.
@2lvh: You're dreaming. Noble was bought for the production and for ego. Cyprus still waits, but that was already a discovery. Otherwise, they had nothing meaningful in their exploration portfolio.
With luck Noble brought some exploration potential in the middle east. Nobody knows what our team was thinking with that Red Sea ram pasture!
Wonder if Ballymore will be monetized before the next round of layoffs. Surprising that not a drop has been recovered from those supposedly world-class reservoir sands. There were certainly a few preening and posturing over the Norphlet portfolio.
Chevron is no longer competent at exploration with systemic failure in Suriname, Mexico, Brazil, etc. The only “success” is when they take credit for our Permian development wells by reclassifying them as exploration. It is time to defund exploration and put the money to better use.
Yes I expect a big price spike short term. Exploration is way down but demand has not declined much. You might look at your roads full a petrol power cars and trucks: They will not be replaced over night and the infrastructure to replace with electric or something else is still a long way off. Decades if everyone decided it had to be done yesterday, and half the USA (Republicans) don’t even admit that climate is changing. Between now and then expect very profitable opportunities in oil and gas. When will the oil and gas decline start for real, look for dealerships to be full of alternative energy cars and gas stations to be harder to find than charge stations: In other words, no were even remotely on the horizon! Change is not driven by investors, it is driven by consumers!
@1prp Take a look at 2020-2021. Increases in oil prices and job creation* are no longer correlated.
(*) This speaks to the US jobs market. O&G companies have been outsourcing entire business units to places like Bangalore (average salary ~$13k/year) for a long time and will continue to do so.
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@iyy There are non-petroleum alternatives to most petroleum-based products. The issues are cost and scalability. Once those problems are addressed (as they have been for electric vehicles), demand for petroleum products will decline even more acutely. This is the primary reason why large O&G companies spend most of their time lobbying for federal subsidies and litigating against regulation.
Denial may warp perception, but it won’t change reality.
No one’s investing in horses and buggies anymore but eventually we’re going to need a way to get around. Same with women going to college. Those dishes are really starting to pile up and I’m worried about the future. :(
It would be really great if there was a concerted effort (across the industry) to stop exploring. That would be an excellent diversion away from Chevron's anemic exploration program the last decade, coincident with staffing an exploration program with posturing and preening high pots, diversity quotas, and general lack of skills. We're led to believe that our 'success' in the Permian is razor-sharp skill and finesse, when in reality it is d-mb luck amplified by a massive acreage position. Look at finding costs and ROI, Chevron is no better than any other company (even independents) in the Permian, we just have more acreage. Same logic that drove our 'success' in California heavy oil for so long.
It’s across the board. These companies have stopped investing in the future, so what happens. We’ll supply and demand happens. For the last ~5 years no one has been looking for O&G. This will eventually effect the supply curve. Now the green energy people says this is great and renewables will take over. I agree renewables will fill a partial gal for this but they will not fill the entire gap as remember renewables can’t make the other products of oil and gas (all the none energy items). When supply if lower then demand we will have a correction g-n pricing and + $120 bbl oil will be the future until the supply again outpaces the demand and then we will have another downturn. This is the bo-m bust of oil and gas.
Let the price of oil and gas go up. More job security with higher prices so the higher the better.
Petroleum demand will continue to decline, with supply outpacing demand going forward. Plans are already afoot for renewable energy ships and planes. The US navy has had renewable energy ships for decades. Most ships will probably be run on hydrogen before long. United Airlines just flew a passenger flight on renewable energy. The future is here!
Oil and gas is not only used for power generation [ electricity, combustion engines]. It is vastly used for petrochemicals. Even if the electeicity generation and auto fuel pivot 100% to solar and green sources, there will be still at least a consumption of 50MM BOE per day [ including jet fuel and fuels for ships]. That is if you think all the world switches to green and renewable all at once [ which is not happening]. The reality is the need for hydrocarbon products for a good 4 to 5 more decades.
California is the canary in the coal mine. Gasoline and propane sales are at 30 year lows and trending lower every year as solar/electric replaces fossil fuels. California has had days when state power generation hit 95% renewable sources. Stay tuned.
oil won’t be the only energy source in future
will just continue to see a demand decline but for now, it will be a transition fuel till renewables mature
If alternative energies step in to fill the gap, that only means there will be a glut of oil remaining from already producing fields. That may translate to a lesser demand for oil in some quarters, which could mean a drop in gasoline prices. There’s no direct correlation across the board, but to the degree of replacement of fossil fuel by alternatives could see a drop of price at the pump. Oil and gas will never go away completely. There will be a necessity and demand for it, therefore the market demand will drive its production quantity and the price. The basic law of economics will always remain intact.
There is plenty already discovered which will never be consumed because of the transition to clean energy sources which is already under way. Exploration needs to stop.
Hmmm. I wonder if there was a reason for that.
Another high oil price cycle is on the horizon, if you have missed the past high cycles plan for this one, it might be the last one depending on how green energy pans out for the next decade.
Something will step in to fill the energy gap. Might be 'green' energies. Might be nuclear. Might be other fossil fuels. If the gap still doesn't close, the price will rise and force people to use less. Not necessarily great for oil and gas companies, but if we don't provide the product, the world will continue without us.
OP, I think your synopsis contains the answer. The thing that will have to “give” is the human population, and in a downward fashion.
Not what I’d advocate for, but that is definitely the intention of the green movement.