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Payback time as explorers reap finds

High-impact discoveries on course for four-year high as operators splash more cash on exploration: Westwood

Increased spending on exploration appears to be paying off for industry players with the number of high-impact discoveries made worldwide so far this year already exceeding the tally for 2018, though gas accounts for the lion’s share of major finds, according to research firm Westwood.

The number of discoveries with more than 100 million barrels of oil equivalent stands at 16 for the first half of this year - compared with 15 for all of last year - and the firm forecast that a total of 10 billion boe could be found by year-end, which would be the highest volumes from high-impact exploration since 2015.

At the same time, the commercial success rate of 37% for this year has “improved significantly” from around 27% in the two preceding years, with 51 exploration wells completed so far in 2019 compared with 36 for the same period of last year.

The discovery picture is though dominated by major gas finds such as Dinkov at 14 trillion cubic feet and Nyarmeyskoye with 4.3 Tcf, both in Russia’s Kara Sea, and the 4.5-Tcf Glaucus in the Eastern Mediterranean off Cyprus, with the present tally of five oil discoveries around half the total for last year.

The largest oil finds were considered to be Yellowtail and Tilapia in ExxonMobil’s prolific Stabroek block off Guyana - both at more than 300 million barrels - where the US supermajor has boosted the estimate of recoverable resources from 5.5 billion to 6 billion boe.

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Tullow Oil has now added to the tally in the emerging South American play with an oil strike at the Jethro prospect in the neighbouring Orinduik licence off Guyana - the first to be made in the block - that is likely to exceed 100 million boe.

Westwood said emerging-play exploration has been dominated by the Upper Cretaceous play centred on ExxonMobil’s landmark Liza find off Guyana, the Pliocene deep-water clastic play off Trinidad and the Cretaceous gas play in the South Kara Sea.

While 18 tests were completed in frontier areas in the first half of this year, only one was a potential commercial play-opener - at Total’s Brulpadda-1AX gas discovery well in the Outeniqua basin off South Africa.

The firm said further high-impact success came in mature and maturing plays, including Eni’s prolific Block 15/06 off Angola, where it has turned up the Agidigbo and Agogo finds, and CNOOC International’s Glengorm gas strike off the UK.

Further discoveries are now in prospect with another 35 to 40 high-impact exploration wells set to be drilled by year-end that would take the tally to around 85 for the year, which would be a 35% increase on 2018.

Among drilling hotspots identified by the firm are the Suriname-Guyana basin, Gulf of Mexico and North West Europe, with a further seven high-impact wells expected in the latter region in addition to the 17 already drilled this year as it sees a busy year of exploration.

However, the firm has earlier highlighted the lack of high-impact exploration success off Norway over the past five years due to a “deterioration in the quality of the prospect portfolio”, with a succession of dusters in the frontier Barents Sea earlier this year corroborating this view.

Discovered commercial volumes have been cut by more than half over the period with only three of the 27 finds made exceeding 100 million boe, reflecting the increasing maturity of the Norwegian continental shelf, as the number of exploration wells completed is down by around a quarter versus the previous five years.

Westwood has identified a number of wells to watch including frontier probes at CNOOC’s Iolar in the Porcupine basin off Ireland targeting a Upper Jurassic play, Eni’s Aspen in the UK’s southern North Sea that will test a Carboniferous carbonate play, and ExxonMobil’s Sculpin in the Gippsland basin off Australia.

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Energy companies are loosening the purse strings by spending more on exploration as they seek to replenish depleted reserves after four years of cutbacks due to an earlier oil price slump.

This has led to a resurgence in drilling activity resulting in higher utilisation of the global jack-up and floating rig fleet that stood at 73% at the beginning of July, a rise of three percentage points year on year, according to the latest offshore rig report from Clarksons Platou Offshore.

The average rig utilisation rate for the combined fleet in the first half of this year was at 70%, up from 67% in the same period of 2018.

Clarksons said, “though the [drilling] sector remains generally challenged, there are signs of continuing progress on the demand side”, and improvements in utilisation for some rig classes have resulted in “modest” increases in dayrates for certain rigs.

Westwood also disclosed recently that the drillship market in the US Gulf is “picking up steam”, with marketed utilisation of the regional 25-rig fleet at 96% as of mid-July.

Operators are once against contracting more rigs for deep-water regions such as the US Gulf and West Africa that is likely to trigger a positive development in dayrates for such assets, coming on the heels of an earlier recovery in the harsh-environment market off Norway.

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