independent explorers createhigh value opening up new countries

7/30/2019 Independent Explorers CreateHigh Value Opening Up New Countries

1/16

Independent Explorers Create High Value Opening up New Countries*

Julie Wilson1

Search and Discovery Article #70144 (2013)**Posted July 22, 2013

*Adapted from oral presentation at AAPG Annual Convention and Exhibition, Pittsburgh, Pennsylvania, May 19-22, 2013**AAPG2013 Serial rights given by author. For all other rights contact author directly.

1Senior Analyst, Exploration Research, Wood Mackenzie, Houston, Texas ([email protected])

Abstract

Nine countries have seen country-opening finds since early 2006 - Uganda, Ghana, Sierra Leone, The Falklands, French Guiana, Sri Lanka,Cyprus, Liberia and Kenya. Deepwater plays have provided the first material hydrocarbon discoveries in seven of these nine frontier countries.

All nine of these important wildcats were operated by Independents, led by Tullow, Anadarko, and Noble Energy. The Majors have been fast-followers, farming-in to French Guiana ahead of the discovery well (Shell, Total) and moving quickly to establish positions in Uganda, Ghana,and Liberia. Further moves to enter these emerging hydrocarbon plays are likely.

Total volumes discovered in these nine frontier countries already exceed 4.5 billion barrels of oil and 13 trillion cubic feet of gas. Theserepresent little more than 5% of global new field volumes since 2006, but exploration in each country is still at an early stage. We estimate thatthe initial finds have de-risked a further 10 billion barrels of yet-to-find oil potential, plus substantial gas upside.

Frontier country exploration has out-performed since 2006, achieving full-cycle returns of 17% versus an industry average of 14%. Full-cyclevalue creation was more than US$20 billion at our long term Brent price assumption of US$80/bbl. This recent success contrasts with the

decade prior to 2006 when explorers completed wildcat wells in 22 frontier countries, but made commercial discoveries in just three - Sudan,Israel, and Mauritania.

Two factors have been key to opening frontier countries. Firstly, explorers had to be comfortable drilling wells with low chances of success,reflecting the product of both play risk and prospect risk. Secondly, the remoteness from proven play fairways means that the application ofregional-scale geoscience has been a core competence.

Since 2002, the wildcat success rate in frontier countries is just 10% - less than one-third of the industry average. The increase in the number of

frontier country discoveries since 2006 reflects an improvement in success rate as well as slightly higher activity in these plays.
mailto:[email protected]:[email protected]:[email protected]:[email protected]


2/16

We expect the trend of around 15 frontier country wildcats per year to continue, and overall, these wells should be rewarded with one or twonew country play-openers annually, if one-in-ten success rates are maintained.


3/16

Julie Wilson

Senior Analyst, Exploration Research

AAPG Pittsburgh, May 20th, 2013

Independent explorers create high value opening up new

countries


4/16

Wood Mackenzie 2

Wood Mackenzie Disclaimer

This presentation has been prepared by Wood Mackenzie Limited for delivery at AAPGPittsburgh on May 20th, 2013. It has not been prepared for the benefit of any particular

attendee and may not be relied upon by any attendee or other third party. If, notwithstanding

the foregoing, this presentation is relied upon by any person, Wood Mackenzie Limited does

not accept, and disclaims, all liability for loss and damage suffered as a result.

The information contained in these slides may be retained by attendees. However, theseslides and the contents of this presentation may not be disclosed to any other person or

published by any means without Wood Mackenzie Limited's prior written permission.


5/16

Frontier conventional exploration continues to be led by the Independents

Operated all nine new country-openers since 2006

Source: Wood Mackenzie Exploration Service

Appetite for play risk

and strong regionalgeoscience have

been the keys

Wood Mackenzie 3


6/16

These new frontiers have yielded large volumes and value


Wood Mackenzie 4

Volumes discovered since 2006 (bnboe)

New frontier

countries

Global242.4

7.3

Volumes discovered in new frontier

countries since 2006 (bnboe)

Gas

Liquids

4.4

2.9

but still only a small fraction of global totals

$18 billion

$354 billionValue creation

Value creation


7/16

0%

2%

4%

6%

8%

10%

12%

14%

16%

0.00 1.00 2.00 3.00 4.00

Fullc

ycleIRR

Resource discovery costs (US$/boe)

Frontier basins Emerging basins

Mature basins All basins

Frontier basins benefit from low discovery costs

Wood Mackenzie 5


Discovery costs and IRR

50%

52%

54%

56%

58%

60%

62%

64%

66%

68%

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

Frontier Emerging Mature

Governmenttake%

Unitdevelopemntvalue(US$/boe)

Low

Base

High

Governmenttake %

Development value and government take

and attractive fiscal terms

though other factors make developments challenging


8/16

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Murphy

Maersk

Wintershall

Talisman

NobleEnergy

Marathon

Occidental

Anadarko

Repsol

Lundin

Woodside

Hess

BHP

CairnEnergy

Statoil

Nexen

ExxonMobil

TullowOil

ConocoPhilips

RWEDea

BP

Shell

Apache

PETRONAS

Total

ENI

PremierOil

Chevron

Petrobras

BG

Inpex

Santos

Kosmos

Top explorers are shifting spend towards frontier and emerging basins

Investment by basin maturity (2002-2006)

Emerging

Frontier Mature

Proportion of conventional

E&A spend(%)

38%

62%

Average

Wood Mackenzie 6

Source: Wood Mackenzie Exploration Service Company Performance Report, October 2012

Investment by basin maturity (2007-2011)

MatureFrontier

Emerging

Marathon

10%

100%

90%

70%

30%

50%

0%

Nexen

Wintershall

Occidental

Talisman

Maersk

Murphy

Lundin

Total

Apache

PETRONAS

ENI

Statoil

Woodside

Shell

ConocoPhilips

Repsol

PremierOil

BHP

ExxonMobil

BG

BP

RWEDea

Chevron

NobleEnergy

Petrobras

Hess

Anadarko

Inpex

Santos

TullowOil

CairnEnergy

Kosmos

60%

40%

80%

20%

48%

52%

Average

Proportion of conventional

E&A spend(%)


9/16

0.00

25.00

50.00

75.00

100.00

125.00

0

20

40

60

80

100

2004 2006 2008 2010 2012

Brent(US$/bbl)

Exploration&appraisal

spend(US$billion)

E&A Spend (US$Bn) Brent (US$/bbl)

Exploration investment is rising

Source: Wood Mackenzie Exploration Service and Corporate Benchmarking Tool. Bubble size represents reported exploration spend.

Wood Mackenzie 7

Conventional spend exploration Exploration spend intensity (re-investment rate)

0.00

5.00

10.00

15.00

20.00

25.00

0 500 1,000 1,500 2,000

2011Reportedexploration

spend(US$/boe)

2011 production (mmboe)

Independent

Majors

NOC

with plenty of headroom to go further


10/16

Block Awards

Blocks Awarded 2003 to 2007

Blocks Awarded 2008 to 2012

Vast new areas have been licensed over the past few years

Wood Mackenzie 8

Global blocks awarded 2003-2012

Source: Wood Mackenzie


11/16

The Majors have been particularly aggressive in building up exploration

positions

Wood Mackenzie 9


Majors net acreage capture since 2010

0

50

100

150

200

250

300

350

Exxon

Mobil

Total

Shell

BP

Eni

S

tatoil

Ch

evron

Netacreagesigned

since2010('000km2)

Leading Small Caps by acreage capture since 2010

0

50

100

150

200

250

300

350

SilverW

ave

Statesmen

Res

IntPe

tLtd

UplandO&G

Pangaea

Kos

mos

Ame

risur

EcoO&G

ImpactO&G

Or

anto

New

Age

Frontier

Res

CAMACE

ngy

ERHC

Niko

Res

StarPet

Tangiers

Pet

Ins

tinct

SimbaEn

ergy

Netacreagesigned

since2010('000km2)

and so have the minnows


12/16

Majors will need to be comfortable with lower frontier success rates

Source: Wood Mackenzie Exploration Service, Pathfinder

Wood Mackenzie 10

Majors exploration well success rates 2002-2011 Leading Small Caps by acreage: wells since 2010

0

5

10

15

20

25

SilverWave

Sta

tesmenRes

IntPetLtd

U

plandO&G

Pangaea

Kosmos

Amerisur

EcoO&G

ImpactO&G

Oranto

NewAge

F

rontierRes

C

AMACEngy

ERHC

NikoRes

StarPet

T

angiersPet

Instinct

SimbaEnergy

Numbe

rofwells

Exploration wells Appraisal wells

0%

10%

20%

30%

40%

50%

60%

BP

Statoil

Chevron

Eni

Total

ExxonMobil

Shell

Successrate

Overall success rate

Commercial success rateAverage frontier overall success rate

Average frontier commercial success rate

while small caps may struggle to drill, providing opportunities for M&A


13/16

Huge swathes of frontier offshore acreage have been licensed, dominated by

Africa and the Arctic


Wood Mackenzie 11

Offshore frontier acreage licensed since 2009 compared to deepwater Gulf of Mexico acreage

Africa

FSU

Asia-Pacific

Europe

Latin America

DW GoM

Offshore frontier acreage licensed since 2009 compared to deepwater Gulf of Mexico acreage


14/16

0

10

20

30

40

50

60

2010 2012 2014 2016 2018 2020

Cumulativerigcapacity('000days)

Semi Drillship

Deepwater exploration expected to rise, facilitated by increasing rig fleet

Source: Wood Mackenzie Future of Global Deepwater Markets

Wood Mackenzie 12

Cumulative newbuild MODU days added since 2008 Deepwater rig supply and demand

0

50

100

150

200

250

300

350

400

450

500

0

10

20

30

40

50

60

70

80

90

100

2010 2012 2014 2016 2018 2020

E&AWellC

ount

RigCapacity&WellDemand('000days)

Drilling Demand Rig Supply

E&A Well Count

But it may still be constrained by rig capacity from 2016


15/16

Summary

Independent explorers have led the way opening up new frontier countries since 2006, yielding large

volumes and value

Full-cycle economics of frontier exploration are helped by large discovery sizes and attractive fiscal terms

Top explorers have shifted their exploration dollars towards frontier and emerging basins over the past

five years

Exploration spend has risen dramatically over the same period, with independents spending more on E&A

than Majors, relative to their production levels

Global spend is likely to continue to rise, given the vast amounts of acreage under license

Companies of all sizes have been aggressively growing their land positions, much of it in frontier areas,presenting varying challenges but also opportunities for M&A deals

The huge amounts of recently leased frontier offshore acreage bring both increased complexity and greater

demands on the service sector

Deepwater drilling capacity is set to increase considerably over the next decade with 90 newbuilds to be

delivered; however, in spite of this, we still see a shortfall in supply by 2016 as demand outstrips supply

Wood Mackenzie 13

Visit Wood Mackenzies www.woodmac.com to learn of our latest research

and communicate directly with our experts on key trends in your market.

www woodmac com
http://www.woodmac.com/http://www.woodmac.com/


16/16

www.woodmac.com

Global Offices

Australia

Brazil

Canada

China

India

Global Contact Details

Europe +44 (0)131 243 4400

Americas +1 713 470 1600

Asia Pacific +65 6518 0800

Email [email protected]

W ebsite www.woodmac.com

Indonesia

Japan

Malaysia

Russia

Singapore

South Korea

United Arab Emirates

United Kingdom

United States

Wood Mackenzie is the most comprehensive source of knowledge about the worlds energy and metals industries.

We analyse and advise on every stage along the value chain - from discovery to delivery, and beyond - to provide

clients with the commercial insight that makes them stronger. For more information visit: www.woodmac.com

Wood Mackenzie 14

independent explorers createhigh value opening up new countries

Documents