Oil Exploration Becoming Harder for Majors

Oil exploration is becoming increasingly harder for the oil majors, with more technical challenges and fierce competition from national oil companies, said BP exploration consultant Francis Harper.

"The industry is running out of ideas of where to explore next," he told Dow Jones Newswires on the sidelines of a two-day workshop on oil depletion run by the Association for the Study of Peak Oil (ASPO).

"Some places are prohibited by politics, and some are just physically very difficult. In the Middle East in general it's quite hard to make money," he said.

Last year the greatest volume of hydrocarbons was found not by the super majors but by national oil companies, he noted.

"NOCs can get into places like Sudan and Myanmar which tend to be off limits to the oil majors for political reasons," he said.

Whilst some corners of the planet still remain to be explored, sufficient exploration has been carried out globally to indicate there won't be another discovery on the scale of the fields in the Middle East which hold up to two thirds of the all the world's oil reserves, he said.

Saudi Arabia alone estimates its oil reserves at 260 billion barrels.

The last vast oil province to be discovered was the North Sea at around 50 billion bbl, and Harper doubts that there is another North Sea waiting to be discovered.

"There are some possibilities - Mexico could be big, and there could be an enormous amount held in the Arctic, but that's fraught with technical and political difficulties," he said.

ASPO forecasts that global oil production will reach a maximum peak in the next few years which will be followed by a steady and unstoppable decline which will result in production being unable to meet demand.

The timing and outcome of such a scenario are hotly debated, and there is still great reluctance by oil companies to join in the debate.

"Part of the reluctance is that oil companies don't want to be associated with a doom-and-gloom scenario," Harper noted. "And some don't enter the debate because they believe the optimistic scenarios."

Much optimism has been generated by advances in technology and many people expect this will continue to make more oil accessible by enabling the extraction of oil from previously untapped places.

"I'm not as convinced as some that technology will save us," Harper said. "It will do something to defer the peak, but it's not a magic bullet."

He said the current oil price of around $40 a barrel won't change BP's internal costing assumption of $20/bbl for planning new projects.

"We consider this an abnormally high oil price driven up by geopolitics not fundamentals, and that it will come down."

Earlier this year BP raised its price assumption criteria to $20/bbl from $16/bbl.

Harper added that new projects are also judged on other criteria which are completely price insensitive, such as a requirement for a minimum prospect size.

For entry into a new exploration venture BP would usually require at least one 250 million bbl of oil equivalent prospect and a path indicating there could be one billion bbl in the venture as a whole, he said.

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