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The Exploration Dilemma – Threshold for a New Paradigm?

Abstract

Historically, global conventional discoveries have been the backbone for reserve replacement. But global conventional oil discoveries have slumped since 2010 and the volume of oil discoveries during 2016 could be the lowest since the 1950s. The exploration dilemma is framed by a major slump in discoveries amidst an increase in supplies, little spare production capacity, rising demand and reduced exploration spending. The rise of two significant trends suggests that a new exploration paradigm is emerging. First is the rise of North American resource plays that delivered an unprecedented surge in recoverable resources and supplies. The surge resulted in excess supplies, a near collapse of oil and gas prices and it prompted major producing countries to defend market share instead of price. North American production from resource plays dropped in response to low prices but operators have reduced costs and leveraged horizontal technologies to boost productivity from tight reservoirs in order to cope with $45 oil and sub-$3.00 gas. Dramatic improvements in horizontal well performance have led to the second significant trend – the rise of the “super basin” – as epitomized by the Permian Basin in West Texas. A recent assessment of petroleum systems and potential reservoirs –conventional, unconventional and tight –estimated Permian Basin ultimate recoverable oil at 104 billion bbl – almost three times the EUR in 2000. Extrapolating the observed uplift in Permian recoverable to 25 global super basins yields estimated recoverable oil of more than 800 billion bbl – mostly from known fields and plays with established infrastructure and services but with a mix of above ground risks. Key questions include: Will observed breakthroughs in cost effective productivity from stacked Permian reservoirs translate to international super basins? If so, will the super basin model, driven by field growth and development of tight/unconventional reservoirs, generate adequate new supplies to impart a new paradigm - reducing the role of conventional exploration in replacing future reserves.