Big oil, determined to keep the party going, is opening its corporate wallet wider to indulge in a record rate of exploration in 2006, which, fingers crossed, will hopefully lead to a record rate of discovery.
Next year, according to the latest Lehman Brothers survey, the world oil industry will spend a whopping $US238 billion on exploration and production, a 14.7% increase on the estimated 2005 spend of $US207 billion.
The forecast outlay continues a five-year trend of rising E&P expenditure, with the super-majors of ExxonMobil, Shell, BP, ConocoPhillips and Chevron leading the charge. Between them these five ugly sisters will spend a collective $US40.12 billion.
Impressive as the Lehman numbers are, and even after considering that the survey of 325 oil companies (omitting some government-controlled firms) is probably an under-statement, there is still a critical question lurking in the back of The Slug’s mind, and probably the mind of everyone who uses oil. Will the E actually deliver the P?
A breakdown of where the exploration dollar will go is not included in the Lehman survey, but it’s a fair bet that quite a chunk will go into frontier drilling, and unconventional oil and gas plays.
The reason for this increasingly desperate hunt is glaringly obvious. The easy stuff has been found and now its desperation time.
There is, of course, another factor in the latest round of E&P spending. Record oil prices (and profits) mean that the oil companies can indulge themselves in pursuing concepts and leads that would not normally be given the time of day by a budget committee.
For the drillers, 2006 looks like delivering conditions best described as nirvana. Demand is strong, and growing, and so are the prices they’re charging.
A Lehman spokesman, Jim Crandell, is reported to have said during a conference call from New York when his firm released its latest survey that 2005 would “go down as the year the long, moderate recovery, was transformed into a drilling boom”.
Lehman found that most respondents to its survey expect drilling costs to rise further in 2006, with a 15% hike the common tip. Most explorers listed a shortage of drilling rigs as a major area of concern with some suggesting that their projects might be delayed for up to a year by the rig shortage.
On the price of oil itself, the consensus tip from that rather impressive sample of 325 firms is for an average price in 2006 of $US49.89 a barrel of oil, and $US7.64 per thousand cubic feet of gas.
A breakdown of where the money will be spent shows that the US will host $US57 billion in E&P work, Canada $US24.7 billion, and the rest of the world $US156 billion.
In the US, unconventional work is starting to heat up. The Rocky Mountains are a prime target for new gas, along with the Barnett Shale of North Texas and Oklahoma.
Like everyone with an interest in oil, The Slug reckons that rising E&P budgets is a good thing. But two questions linger.
Why has the build-up been so slow? It can’t simply be the rig shortage, it has to have something to do with a shortage of targets, as shown by the more widespread inclusion of unconventional work this year and next.
And will next year will deliver better results? Because it also seems that the rising level of exploration is not delivering what oil consumers want to hear – news of a major new discovery which will push out the day when peak oil is reality.
