Oil discoveries fall
Supply shortages and increasing prices may be awaiting as companies spend less on exploration amid the shale revolution
The drop eventually could translate into shortages and sharply rising prices as existing reserves diminish.
Major oil discoveries have fallen to their lowest levels in more than seven decades, as drillers across the world wrestle with stubbornly low prices and the tantalizing draw of quick returns in U.S. shale fields.
Global oil companies are projected to end 2017 with discoveries totaling just 7 billion barrels of oil and gas — less than onequarter of the 30 billion barrels identified in 2012, according to Norwegian research firm Rystad Energy. That falloff eventually could translate into supply shortages and sharply rising prices as global demand diminishes existing reserves.
“We haven’t seen anything like this since the 1940s,” senior Rystad analyst Sonia Mladá Passos said in a report. “We have to face the fact that the low discovered volumes on a global level represent a serious threat to the supply levels some 10 years down the road.”
Exploration budgets — the cash oil companies spend on finding new fields — have fallen for three consecutive years, Rystad said, dropping by more 60 percent in total. And the shale revolution has further diverted company spending from offshore and conventional exploration to U.S. fields, where hydraulic fracturing unleashed vast and previously unknown oil reserves.
But shale production won’t come anywhere close to providing enough oil to satiate the world’s growing appetite, rising toward 100 million barrels per day. Energy research firm IHS Markit estimates shale fields account for just 7 percent of global production.
World oil discoveries began falling in 2010, Rystad said. In 2012, companies found fields holding an estimated 30 billion barrels of oil and gas. By 2014, that number had fallen by half, to 15 billion barrels; last year it
halved again, to 8 billion barrels.
More worrisome, Passos said, is 2017 discoveries are on pace to replace just 11 percent of the world’s production this year. Average offshore discoveries held just 100 million barrels this year, compared with 150 million in 2012.
Oil prices began tumbling in June 2014, after several years of sustained drilling and fracking in U.S. shale fields helped produce a glut of oil. They kept falling into February 2016, bottoming out at about $26 a barrel. More than 300 oil, services and pipeline companies went bankrupt; nearly all cut spending steeply.
As prices have rebounded, production has become concentrated in the Permian Basin in West Texas, where companies could drill, frack and pump oil quickly and profitably, leading many to pull out of more expensive offshore and international positions.
Oil majors like Californiabased Chevron Corp. and independents such as Houston’s Marathon Oil Corp. and Apache Corp., shifted their focus from offshore and international toward such shale fields. Chevron recently began a multibilliondollar drilling campaign on 2 million acres in the Permian. Marathon sold its offshore portfolio in Norway to focus almost exclusively on shale. Apache expects to spend about two-thirds of its $3 billion capital budget this year in the Permian.
Still, analysts, executives and energy agencies have all warned that low levels of investment in exploration of conventional oil fields could lead supplies to run hundreds of thousands of barrels short by the end of the decade.
In 2015, the Houston energy investment bank Tudor, Pickering, Holt & Co. projected oil industry cost-cutting could take 19 million barrels of oil out of daily production in the years that followed. Last year, the consulting firm Deloitte reported that the industry is $2 trillion short on the cash it needs to replace the crude it is pumping today.
And in January, Paal Kibsgaard, chairman and CEO of the international oil services giant Schlumberger, said most countries outside the Persian Gulf are depleting their reserves without replacing the oil they produce.
Rystad noted a few major discoveries in 2017, including Exxon Mobil’s 1-billion-barrel find off Guyana and Dallas-based Kosmos Energy’s 15 trillion feet of natural gas in Senegal. In Mexico, the state-owned oil company Pemex discovered about 350 million barrels in the onshore Ixachi field, and Houston’s Talos Energy found at least 1.4 billion barrels in the Gulf of Mexico.
The research firm said it doesn’t expect any other large discoveries this year, but with U.S. crude stockpiles shrinking and oil prices approaching $60 a barrel, companies may be more inclined to increase exploration budgets soon.
U.S. crude prices on Friday rose 11 cents, or 0.2 percent, to $58.47.