The heat is on in the E&P sector - at least if judged by the mood surrounding the Offshore Technology Conference last month. Oil prices are high enough to support added exploration and field development efforts. But is it really happening? Has the heat been turned on?
Undoubtedly, heat is building in the offshore sector, where more proven fields are awaiting development than at any time in the history of the industry, but investment still is moderate.
Some 2 years have lapsed since oil prices collapsed and E&P activity came to a virtual halt. For the past half year, however, oil prices have been strong. But E&P activities have not increased accordingly.
The need for E&P development efforts to establish new oil production capacity for the next century is stronger than ever. At the same time, the oil companies have lagged behind their own targets of growth. Accordingly, growth has been achieved for some companies through acquisitions and mergers, while the industry as a whole has achieved little in terms of added production capacity.
Estimates of demand for oil in the future are increasing at more rapid rates than expected only a couple of years ago. The 100 million b/d mark on the demand curve is now envisaged for some time around 2015. How much new production capacity would that require? Taking into account declining production rates from existing fields, we are probably speaking of adding 60 million b/d of production capacity in the next 15 years to cope with demand.
Most analysts agree oil consumption is back on a rising pattern, and a growth in demand for oil from 1999 to 2000 is estimated at more than 2% of nearly 2 million b/d. The 2% per annum growth pattern is expected to continue through 2005, while after that a more modest growth in consumption will have to be anticipated. This means that merely to replace produced oil with new reserves in the period to 2015, the industry will have to find almost 500 billion barrels of new oil.
It's one thing to add the reserves, it's another to put the required new reserves in production. This will take effort, technology and money.
Increasing demand for oil and the technical ingenuity of the oil industry are extremely forceful drivers. Their combination will result in technological achievements that can hardly be imagined today. The fact remains, however, that to add the reserves and production capacity required, wells have to be drilled into the reservoirs.
Much of the required new production capacity is expected to come from the offshore sector, a sector that supplies about one-third of world production of oil. The world's deepwater basins are where much of the hopes for massive new production capacity are pinned.
Should most of the required new production capacity have to come from deepwater fields, however, it would take more technical capability and money than can possibly become available in the industry.
To begin with, there are not the rigs available in this world to drill the wells required to build production capacity even for the near future. And the alternative to drilling wells into the reservoirs does not exist.
Achievements in technology are believed to make possible in the future what is considered inconceivable today. But the future is just around the corner, and there is hardly enough heat in the offshore sector yet to sustain the E&P effort required.
Even though some heat is building in the international E&P business environments, it is building too slowly when compared with what is required. On the other hand, if heat is building too briskly, there is the danger the industry will overheat, with the cost consequences implied. So however one looks at it: the heat is on.