What's new in exploration

Before we can discuss exploration technology, we should agree on just what “exploration” means. Numbers on how much is being spent on exploration typically are reported as being from “E&P” activity. Such expenditures are over-statements of actual “E” dollars. Money spent on development (“P”) is quite real. Management at that point knows they own something of value and are spending investment dollars to determine the extent of that value. Any “E” going on at that point will be in New Ventures or the Land Department, to see if any more of “those” opportunities still exist and are available.

Exploration, according to me and most of the crew who have participated in “E” activity, is the effort to find hydrocarbons in places previously thought to have a low probability for occurrence and accumulation of hydrocarbons. Therefore, exploration areas, prior to a discovery, are usually low-priority in the annual budgetary process of most majors, and large independents, i.e., when compared to field development and executive bonuses. Yes, I said that. Bonuses are based on shareholder return, and most execs rarely believe they will be rewarded for chasing high risk.

What’s new? Large companies again find themselves in the difficult position of having to replace reserves, just to break even (B.E.) with shareholder value. The B.E. value is based on booked reserves multiplied by the price of equivalent barrels of oil, minus total expenses. Reserves are depleted by the natural course of events of being an oil company in the supply business. In the last few years, several operators have individually spent over $30 billion, each, on E&P projects. Real exploration is probably no more than 20% of that number. Reported elsewhere, overall “E” results have been disappointing. Evidently, the disappointment is occurring somewhere outside of North Dakota.

Normal exploration success traditionally was somewhere around 10% of wells ending up commercial. In the last 20 years, technology has pushed that to about 20%. Add in, that exploration today includes what used to be called exploitation of a known discovery, and we are up to about 40% commerciality per “E” well.

Some majors experience lower discovery rates than others. However, the days of buying reserves in the ground for $5/bbl on Wall Street are gone. So are Gulf Oil, Superior Oil and Getty. Never heard of them? You have heard of Chevron, which used to be Chevron-Texaco, which used to be Chevron and Texaco?

Do not be surprised that some mega-oils are looking to acquire oily assets again. There is only so much land that can be leased. Until “new” land opens up, such as the Arctic and major portions of the Eastern Seaboard, the U.S. will have to wait. Africa and South America continue to be promising. We all agree that we should stay away from Eastern Europe and Iraq right now.

Tech news. A complimentary strategy to buying oil is to invest in more technology, or at least apply more technology when exploring. Spending, say, $4 million to image a deepwater well with 3C VSP is a bargain, compared to the $150 million spent to drill the well in the first place. A VSP image could control where the next well should be placed. Amazingly, management, engineering and geoscientists all agree that more information is better than less. Not spending effectively on exploration technology is about the same as not changing the oil in your car.

Everyone knows that 3D seismic is the best way to acquire a comprehensive subsurface image. We also know it is not perfect. While marine seismic has greatly improved, current legal restraints have become an economic barrier.

Professional litigants using the Marine Mammal Protection Act of 1972 (16 U.S.C. 1361 et seq.), as amended in 2007, went to the courts, claiming that the U.S. Department of the Interior was not properly protecting marine mammals from possible adverse effects resulting from oil field, air-bubble [air gun] seismic activity. Ordinary marine seismic acquisition activity is now categorized as harassment. The act is enforced in U.S. waters by the U.S. Fish and Wildlife Service and/or the Secretary of Commerce (National Marine Fisheries Service). Permits are required at a cost. Restrictions often state hours of operation and proximity to mammals. Scout boats are a common prevention practice. Almost all marine seismic surveys use air gun [collapsing air bubble] sources.

Good 3D seismic images can significantly reduce oil production’s footprint on the seafloor, subsequent environmental impact, and potential safety risks. Current U.S. governmental restrictions reduce marine seismic productivity times, increase costs and often cause blind spots in subsurface data coverage. Such blind spots can eliminate the ability to adequately evaluate a reservoir or prospect. Drilling within a blind spot and its aperture can also be very dangerous.

Seismic operators acknowledge the public-legal interest and are seeking acceptable alternatives for seismic sources. I see technology alternatives developing along two lines. One, create mammal detection capability superior to current methods, which are binoculars on the fantail in daylight (seriously) and WWII sonar. Sercel recently announced that they are adding “mammal detectors” to the front of their acoustic streamers. I suspect that after collecting a few years’ worth of calibration data, this approach will lessen down time.

Second, we should invent alternate seismic energy sources, hopefully less impactful than air guns. The second approach is more conventional and has been underway for over 40 years. An industry JIP, Texas A&M and RPSEA, will test a couple of those alternative energy vibrators over the next year.