Demand for oil and gas is rising—it always does. And exploration and development activity likewise also increases as it rises to the challenge of finding and producing the required resources.

But this work is taking place in an era of increasing complexity—complexity related to technological challenges, commercial challenges, geopolitics and the wider society’s generally poor perception of the energy business.

An expert panel at the European Association of Geoscientists & Engineers (EAGE) annual event in Amsterdam discussed these issues under the theme “Doing more with less,” with a lineup of speakers including Ceri Powell, executive vice president, upstream international exploration, Shell; Marc Blaizot, senior vice president, exploration, Total; Andrew Latham, vice president, exploration service, Wood Mackenzie; Jose Luis Alcover, executive director, business development, Repsol E&P; and Mario Ruscev, vice president and CTO, Baker Hughes.

Panel chairman Dr. Mike Daly—formerly executive vice president, exploration at BP, who joined Tullow Oil as nonexecutive director in June—pointed out that global oil demand is forecast to continue growing at 1% per year, while global gas demand will rise by 3% annually.

Daly told the audience, “The proposition is that the ‘easy oil’ is now gone. I would say it never was easy! But why is it now getting more difficult?” He highlighted society as a whole as one of the reasons things are increasingly complex, especially in light of the rise of unconventional resources. “Society is not really impressed with what we do. It is quick to judge, and they do not want it in their backyards.”

Upstream industry under stress

According to Latham, the exploration and development industry is “under stress” with higher costs suppressing returns. “Resource discovery costs are rising, while full-cycle returns are falling,” he said.

A decade ago full-cycle returns were around the 20% mark. Today that figure is around 12%, he told delegates. “Investors are not keen at this level. This is seen as an industry struggling to perform.”

Latham added that the issue “was not a volume or subsurface problem,” with emerging plays in areas such as Brazil and East Africa sustaining a healthy trend of new field barrels. “Subsurface potential is not the problem. But we have an industry struggling to increase production and earnings.”

He highlighted where costs have risen, such as in the number of drilling days per offshore well, which have soared since the year 2000 as explorers have had to drill to deeper targets that are often in deeper waters. “Tough trends in exploration lead many to focus elsewhere. Unconventional plays are now the primary growth option for around half the industry,” he pointed out. “Complexity is increasing. And this rising technical and commercial complexity has not been matched by higher prices.”

‘More brain cells per barrel’

Powell agreed with Latham, pointing out that her own company has been looking at the specific cost of downtime in deepwater wells, where rig rates can be $1 million per day. “So I fully understand about the cost point,” she said.

But Powell went on to stress the importance of some of the “softer” issues, namely the need for the oil and gas industry to find “more brain cells per barrel” to cope with today’s demands. Those demands include operators having more portfolio gains but less time: “It’s a real conundrum—a race against the clock,” she admitted. Early de-risking through better seismic and reservoir evaluation is now crucial before companies will commit often massive amounts of investment dollars. Shell recently carried out a major seismic program over the whole of Brunei’s offshore sector that helped reinvigorate what is a mature area for the company. “We drilled 10 new prospects there last year and have 50 to be drilled in the coming years,” she said.

Part of that de-risking comes from companies retaining vital internal knowledge gained by their more experienced employees while also using the fresh thinking that comes from new recruits. “More connectivity across generations is very important,” Powell said, “getting people together at Shell who have maybe worked for just a few years in the industry or in one case 40 years.”

She was referring to Shell’s internal Rejuvenate Opportunity Now (RON) workshops, which get young and old geoscientists together to take fresh looks at how hydrocarbons formed in mature basins, how they moved around and where they might be now. That includes bringing together geologists who are currently exploring a basin with those who explored the same basin five, 10 and in some cases even 30 years ago.

In one recent case in Oman, a RON workshop found and identified new plays now already being drilled, she added. “We need more brain power to tackle more complex cases. But it is brain power that needs to be connected.”

Rising costs

Another panelist, Alcover, chose to highlight the issue of cost escalation, pointing out that the annual development capex for international oil companies has more than doubled since 2005 to more than $130 billion in 2012.

Blaizot agreed that the oil and gas sector is indeed seeing higher capex and opex but less profitability. “We have more competitors and more data—but do we have more knowledge? And we have, and we will have, more and more energy demand. We have more resources, more complexity, more demand. But we also have more price volatility.”

In response to one audience question, he also pointed out that when undertaking international projects, “local content does not mean lower prices.”

He urged his fellow operators to do more in terms of sharing their resources, whether through established “rig clubs” or similar arrangements for the use of seismic vessels.

Improve recovery rates

Ruscev chose to focus on the need for the E&P business to dramatically improve reservoir recovery rates from the present average industry level “of maybe 40%,” he said.

“We have to rethink the whole way we do it. We need to understand what we do. If we do something and we do not produce 60% of it, then we do not know what we are doing.”

He asked the audience how the industry could become more predictive in unconventionals, for example. “We have to go back and use some brain power. Go back and understand how to create this artificial permeability,” he said. “What will the solution look like? We have a lot of fields. But I cannot say how it will look 15 years from now.”