Major oil explorers have changed the way they approach searching for new reserves, leading to improved returns, even at lower prices, according to a research from Wood Mackenzie.
Andrew Latham, Vice President of exploration research at the company told CNBC Monday that exploration has a new philosophy: Less is more. He added that most of the oil discoveries that the major companies are making tend to be in deep water and the break even points are much higher. As a result, explorers are pulling away from the very high cost and high risk frontiers.
"The new economics of exploration mean that rather than pursuing high-cost, high-risk exploration strategies - elephant hunting in the Arctic, for example - the majors have become more conscious of costs," Latham said. "Smaller budgets have required them to choose only their best prospects for drilling, including more wells close to existing fields. The industry now has in prospect a different – and potentially more profitable – future."
The Wood Mackenzie report, entitled Exploration Benchmarking – Majors 2006-2015, noted that a total of $169 billion was invested in exploration by majors between 2006 and 2015, adding 72 billion barrels of oil equivalent (boe) to their resource base. Of this, 25 billion boe comes from unconventional plays. While resource discovery costs for the period averaged US$1.78/boe, returns over the period were not optimal, with returns of just 6 percent, versus an industry average of 10 percent.