Independent Explorers Create High Value Opening up New Countries
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. These represent little more than 5% of global new field volumes since 2006, but exploration in each country is still at an early stage. We estimate that the 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 cycle value 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 of regional-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.
We expect the trend of around 15 frontier country wildcats per year to continue and overall, these wells should be rewarded with one or two new country play-openers annually, if one-in-ten success rates are maintained.
AAPG Search and Discovery Article #90163©2013AAPG 2013 Annual Convention and Exhibition, Pittsburgh, Pennsylvania, May 19-22, 2013