A new study, "Value Creation through Exploration," by consulting group Wood Mackenzie Ltd. finds that, from an exploration investment of $50 billion between 1996 and first-half 2002, 25 study-group companies discovered oil and gas deposits valued at $100 billion. When the net present value of the capital is taken into account, these firms created $73 billion in value-a net gain of $23 billion after expenses. The Edinburgh, Scotland-based firm's study group included BP, ChevronTexaco, ConocoPhillips, ENI, ExxonMobil, Anadarko Petroleum, Burlington Resources, Kerr-McGee, Norsk Hydro and Talisman. Sixteen companies were found to have created value through exploration, and nine made discoveries that were valued at less than the cost of their exploration efforts. Of the successful firms, six were able to achieve a rate of return on their exploration investments of around 14% or greater. The companies were active in nearly 80 countries. Their best discoveries were made in the deepwater Gulf of Mexico, West Africa, Kazakhstan and Egypt, while the most disappointing hunting grounds were certain Latin American and North African nations. "The most disappointing countries for value creation have been the mature, legacy regions which have continued to attract significant exploration expenditure that, in hindsight, has not been justified by their prospectivity," says author David Black, director, energy consulting. Interestingly, the strategies of the successful companies were in many cases identical to those of the firms that did not do well in the rankings. Several firms in each category were diversified; others tightly focused. In some cases, high equity interests brought significant success, while in other cases it meant expensive failures. Strategic alliances were also employed by successful and unsuccessful firms alike. And, some companies were able to thrive in new areas while others withered. There is no simple strategy of success, says Black. Exploration is an enigma, but value creation seems to be based on the ability to leverage skills and legacy positions. And, an element of luck cannot be discounted. -Peggy Williams

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