The industry has long known it could not wait for a Christmas miracle. Its proactive players are getting on with what they do best—finding reserves— but they are finally doing it differently.

Andrew Latham, head of global exploration research at Wood Mackenzie, summarized this approach as simply “drilling fewer but better wells.” Speaking at the Petex event in London, he said, “It is absolutely our view that exploration economics as an industry were broken, and they were broken even when the Brent price was above $100/bbl. But it’s also our view that the industry can reset those economics and get back to delivering a profit.”

But interestingly, Latham chose to back conventional exploration as a “massive contributor” going forward. Looking at oil supply from conventional finds made since 2000, he said production is higher from these than from tight oil finds made over the same period. “We’re already getting 10 MMbbl/d from conventional discoveries since 2000. Our view is that looking at those already in the process of development or likely to be sanctioned very soon, we’ll be getting around 20 MMbbl/d from this exploration success by the middle of the next decade.

“It’s already double the scale of the tight oil industry.”

Rather than volume, economics have been the problem. The industry suffered a “miserable decline in returns,” he admitted, not so much due to lower oil prices but because of high costs and increased complexity. More than half the discovered volumes of the last decade “have gone nowhere.”

The industry is acting, slashing global exploration spend from $100 billion per year three years ago to $40 billion. There has not been a huge drop in conventional wells drilled by majors, but there has been a drop in spending. “The majors are today spending the same per exploration well that they were in 2009. That’s tremendous progress we’re seeing, and we’ll see other companies get the cost of exploration vastly lower,” he said.

This focus on value also means prospects are chosen that have a greater chance of being monetized within a shorter time frame, including new plays and frontiers.

The strongest operators are backing themselves to find more resources, using the downturn to acquire exploration portfolios at lower cost. “We’re already seeing evidence that these things are working out. This is an industry that can recover,” Latham concluded.

This self-help therapy is producing a sharper industry in 2017. The volumes found might overall be smaller, but they will be inherently more profitable.

Contact the author, Mark Thomas, at mthomas@hartenergy.com.

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