PESGB June 2003
President’s Page- Bryan Moseley
With another licensing round now behind us, the applications submitted, the late nights over and the beer demolished, it is perhaps timely to reflect on where exploration in the North Sea is heading. The record in terms of new spuds is clear, in that the North Sea is no longer the flavour of the month, and has not been for some time. The old correlation between oil price and exploration activity simply no longer holds true. What is also clear is that the majors and super-majors, and now even some of the large independents, no longer see the North Sea as a basin in which significant discoveries can be made. Buzzard is dismissed as a ‘one-off’. It is refreshing to see other independents, including of course my own company, take a diametrically opposite view. Larger, higher risk prospects sit alongside smaller, lower risk ones, all with moderate water depths and drilling conditions, with the comfort of a fair success rate, low political risk and (until last year’s budget) fiscal stability. These factors combine to make the U.K. an important part of a balanced international portfolio. Bearing in mind the factors above it remains surprising that in many companies the U.K. chip is being seen more and more as something to cash in rather than play again. Is it just a question of fashion?
Many influential economists and planners say ‘ no’. The mantra of the times is ‘Shareholder Value’ , measured by whatever tool is the current analysts’ favourite. Without growth a company will be marked down by the market, but if there are no more acquisitions to be had where will the growth be found? Constant ‘ re-organisation’ and ‘ re-focussing’ does not find hydrocarbons, although it may improve the balance sheet for a year or two. Only exploration can add value by the discovery of new reserves.
We are unfortunately in an era where ‘Exploration ‘ has itself become a dirty word. Over the past few years the title ‘Exploration Manager’ has been dropped in some quarters to be replaced by some of the most bizarre pieces of newspeak ever to disfigure the English language. It has been accompanied by a wish to de-risk prospects to the point where all too often, if there is no direct hydrocarbon indicator on seismic of the sort that can be seen and touched by non-technical management, a prospect will be held too risky to drill. The fundamentals of petroleum geology have been brushed to one side in the quest for the technological magic bullet. In this era of ‘malarkey’ it is hardly surprising there have been many disappointments.
There are encouraging signs that the pendulum is swinging back. There is no doubt that advanced geophysical techniques for hydrocarbon detection have been over sold and the results over interpreted. In a few areas, in a very few cases, they can give a definitive answer. Elsewhere they can give either highly ambiguous or downright misleading results.
Disenchantment should not cause the baby to be thrown out with the bath water, but should cause a very sceptical eye to be cast over colour displays from a computer. These technologies have their place, but that place is as one of many, not one above all others. The advances in 3D data acquisition and processing over the last decade or so have been stunning; at last we are beginning to see the ‘geo’ coming back into geophysics.
Another paradigm is the enforced adoption of statistical analysis regard less of its applicability. When the opinion pollsters failed with their statistics to predict John Major’s general election victory they did not blame the limitations of their own techniques, but rather those who had (they said) dishonestly answered their questions. Explorationists do not deliberately lie (not too often, anyway), but if we are honest with ourselves we must admit that in many discoveries serendipity can be as important as science. Wells which are not drilled because they have been filtered out of the system through the use of statistics-driven ‘hurdles’ will clearly play no part in success/failure numbers. The misuse or at best overuse of statistical techniques in these circumstances is clear charge in the current climate.
Exploration was once described by Richard Hardman as an oil company’s spear point. It was certainly true then of Amerada Hess in the U.K., and this leading role should be true of any small, upstream oriented company. The discovery of a Buzzard-sized field would be a company maker for such. For a supermajor, however, in terms of reserve replacement,share price and ‘shareholder value’ it pales into insignificance, hence their slow but steady withdrawal from the UKCS, and their decreasing interest in exploration in general.
At present, following the takeover frenzy of the last few years, there are hardly enough independents to fill the gap. The niche for small technically strong exploration companies who are prepared to learn the lessons of the past, and, just as important, those who are prepared to understand the risk and accept it to finance them must surely grow in the years ahead. The current Promote Round is a first step. Will we see the day when the supermajors become so risk averse that they effectively become utility companies, and farm out their exploration to small independent geological innovators? One thing is (almost) certain: the industry will continue to evolve and within it exploration will continue to play that leading role. We must not lose sight of the fact that hydrocarbons are ultimately found by acquiring acreage and drilling wells.