Russia to dominate 2014 exploration numbers

DR. WILLIAM J. PIKE, Managing  Consultant and Contractor, National Energy Technology Laboratory, and Chairman, World Oil Editorial Advisory Board

Russian seismic activity should remain high in 2014. It accounts for about 40% of the global count, with 222 crews active in mid-October, out of a global active crew count of 545 (Seismic Crew Report, Dana Cain, October 2013). Recent announcements by the Russians suggest that these numbers might move higher, as they seek to exploit the potential in their frontier areas.

In May, Russia’s Rosneft and Norway’s Statoil signed a JV to explore frontier areas in the Sea of Oshkotsk and in the Barents Sea. The license requirements include drilling six exploratory wells from 2016 to 2021. The Kashevarovsky, Lisyansky and Magadan-1 licenses are in the Sea of Okhotsk, north of Sakhalin Island, while the Perseevsky license is in the central Barents Sea. The licenses cover 102,000 sq km. Onshore, Rosneft and Statoil have signed an agreement to undertake a pilot exploration program on the Domanik shale formation on 12 license blocks in the Samara region, with Rosneft holding a 51% stake.

The Rosneft-Statoil agreements were followed in September by a much broader commitment to step up exploration, with Vladimir Putin’s signing of a new law introducing tax breaks to encourage oil exploration. The breaks are aimed at subsea fields, estimated to hold nearly 100 Bbbl of hydrocarbons. In addition to cutting taxes on exploration and mineral extraction, the bill will reduce export duties and taxes on oil company profits. The new tax regime is expected to come into force next year.

The Russians followed up in late October, with the announcement of a second JV to expand exploration, this one with India’s state-owned Oil and Natural Gas Corporation (ONGC) to explore for oil and gas in Russian Arctic waters.

The world’s second most active area for exploration is Asia-Pacific, with a seismic crew count claiming nearly 20% of the global total in 2013. Chief among the active explorers is China, whose Xinhua news agency announced that the Ministry of Land and Resources planned an 80-billion-yuan ($13.07-billion) investment commitment to oil and gas exploration in 2013. The figure represents an expanding commitment by the Chinese government to exploration that amounted to only 19 billion yuan in 2002.

Under more recent plans with expanded budgets (2008-2011), more than 35 Bbbl of oil, and more than 20 Tcf of gas, have been discovered. However, these impressive discoveries have not materially lessened the country’s dependence on imported energy. In fact, gas imports have increased dramatically, up more than 30% from 2011. Most analysts agree that these increased demands will lead to greater expenditures on oil and gas exploration in 2014, and through the end of the decade.

For the rest of the world, shale and deep water are the driving plays for exploration. While shale development continues apace in North America, onshore seismic crew count numbers dropped some 30% from October 2012 to October 2013, as development of known, massive shale reserves replaced exploration. For the rest of the globe, the onshore seismic crew count remained mainly stable, reflecting a continuing difficulty in justifying development of indigenous shale plays in the face of increasing U.S. shale production and ramped up Russian output.

Projections for worldwide shale exploration activity should not vary significantly from the scenario last year. But, farther out, “these examples of exploring for tight oil in giant old fields, and exploring shales for the sweet spots, where stimulation will be productive, will likely lead exploration back into the world’s great petroleum provinces.” These provinces include “the Lower 48 of the U.S.; Russia, where it is beginning to happen in the Achimov/Bazenov (area) of West Siberia and the Domanik shales of the Volga Urals; and the Middle East, where the variety and concentration of plays and carbonate rocks promises an immense and long-term tight oil and shale future,” (Future Trends in Global Oil and Gas Exploration, Dr. Michael C. Daly, Imperial College, September 2013).

Although “we are some 40 years into the deepwater era,” as BP executive V.P. of Exploration, Dr. Michael C. Daly notes, “and, although we are perhaps half-way through it in finding terms, deepwater exploration is a trend that will be with us for some time yet.” That sentiment is mirrored in the current, total offshore seismic crew count, with the deepwater areas of the Gulf of Mexico, offshore Brazil and West Africa accounting for more than one-third of that number, as of October.

That, in turn, results from the growing contribution of deepwater programs to total discoveries. Over the past 25 years, exploration success in deepwater has resulted in a scenario that, today, has deepwater discoveries accounting for 30%-50% of all yearly discoveries. This trend should also continue through 2014, as the size of finds remains fairly high, and the continuing expansion of infrastructure, coupled with more sophisticated deepwater technologies, keeps these resources in the solidly economic range.

If this is where our exploration dollars have gone recently, and are forecast to go next year, what might the scenario look like farther out? BP’s Daly has some thoughts on that. He identifies two exploration trends that are beginning to emerge. The first is “a move to the unexplored Arctic frontier of ice-bound continental shelves; and secondly to a re-exploration of the onshore and shallow waters of the world with new images, new technology and, occasionally, new ideas.” While nothing earth-shattering is predicted for exploration in 2014, it should be a solid step forward to a bright future.