Art Smith, chairman and chief executive of the specialist oil industry research and consulting firm, John S Herold, fired both barrels at big oil in a webcast with the thought-provoking theme, The Petroleum Exploration Paradox: Where are the Wildcatters?

His central argument was that the “oil exploration model”, as he calls it, has stopped working, because if it was, exploration would be booming as explorers chase high oil prices.

That webcast was followed by an interview in the latest edition of the US magazine, Barron’s, and Slugcatcher strongly recommends that everyone in the oil game buy a copy and read in full what Smith has to say – and see hidden in his message a marvellous investment theme.

Take first Smith’s charge that exploration spending has declined substantially over the past 10 years, now standing at US15c to the dollar (of revenue) when it was once at US30c.

“The exploration model hasn’t been working, so no one is funding it,” Smith said. “The big oil companies have determined the best thing they can do is continue to buy their own stock and pay dividends.”

Most players in the petroleum game would agree with that observation, but would still be left with the question of “why is it so”?

Smith’s answer is that big oil has either forgotten how to find oil, or has run out of places to look, with the result being that the reserve replacement ratio of some major companies has plummeted to the point where they have to buy reserves to stay in business.

ConocoPhillips was used as a case study after it posted a shocking 13% reserve replacement result, but topped up the shortfall from its own exploration by acquiring Burlington Resources.

Another issue for big oil is that their world has shrunk. Fewer countries welcome them, while exploring in Venezuela, Colombia or Nigeria could involve the risk of forfeiting to the government whatever is found.

But the biggest problem is represented by the ConocoPhillips example of buying reserves rather than replacing them through exploration – and this is where the investment opportunity lies.

If everyone at the big end of the oil game is in a similar position, whereby reserves are not being found in the ground, then corporate activity – takeovers – becomes the growth mechanism.

Smith reckons that big oil is already “reviewing” all the major players in the world. “Those that have undeveloped reserves of significant magnitude but require capital will be the targets,” he said.

“Major oil companies have become bankers, rather than risk-takers,” he said.

The Slug cannot fault the logic. He sees the problem of declining exploration success throughout the resources sector. Not only is oil proving harder to find, but so too is nickel, diamond, gold, platinum and a raft of other commodities.

But if this theory of declining success is correct and oil companies are becoming bankers rather than explorers, then surely there is another aspect – the price of the commodity.

Yes, says Smith, price is an issue, especially if OPEC turns down its production taps which, when combined with a lack of exploration, means that the oil price will rise strongly this year.

“Right now, I’m in the camp that says we could easily have $US80 oil this year,” he told Barron’s.

Don’t we live in interesting times!