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• US Shale – Growing by Learning

Plus Much More Inside

Confidence is contagious.
So is lack of confidence.

PESGB President Hamish Wilson is worried that Vince Lombardi’s words may prove true for the oil exploration industry

The new government has settled in and is, in general, good news for the oil industry. Particularly for the on­shore where the press reports a mood of cautious op­timism that existing legislation can be used to smooth the process for regulatory approvals. Obviously consist­ency in approach will be of benefit to the North Sea, with a big concern being the stability of the Union and Scotland’s role within it.

The DEVEX conference was held last month and proved successful despite a very tough operating environment. It was the turn of the PESGB to chair DEVEX 2015 where attendees enjoyed a very strong technical programme. This year had the addition of educational master-classes provided by some of the exhibitors which ran alongside the main conference. The Young Professionals event (How should YPs cope during a reduced oil price) proved very popular and was an apt topic this year.

March and April saw press releases from Richmond Energy Partners, on global exploration, and Wood Mackenzie on North Sea Exploration. Both make for grim reading: 2014 was a really bad year for conventional exploration on pretty much every measure, with discov­ered volumes and success rates at seven year lows and finding costs soaring. Richmond Energy expects drilling activity to be down 40% in this year, its lowest level for at least seven years.

What is disappointing is industry’s reaction to this poor performance coupled with the falls in oil price. We seem to have lost confidence in our ability to be successful in exploration. This lack of confidence pervades into the investment community, where values placed on explo­ration portfolios are close to zero. Industry focus is on reducing G&A, i.e. exploration staff, the very people who have the expertise to turn the industry around.

I am reminded of the last time we faced industry-threatening low oil prices in the early 2000’s, with the Economist magazine, in March 1999, predicting $4 per bbl. That crisis triggered a rash of industry consolidation and the mega-mergers. However what evolved out of that was an industry confident of its ability to survive low prices but also to regenerate itself. Exploration strate­gies were built on a simple set of mantras: technical quality, capital discipline, focus, rigorous assurance, clear accountability; leading to a consensus on what defined exploration excellence. These concepts have been lost in the last decade of plenty where we had too much capital chasing too few opportunities. This lead to short cuts in technical quality with an outcome that might not be surprising.

The early 2000’s also saw the evolution of new busi­ness models for the industry in general and exploration in particular. Companies were built around strategies e.g. production led exploration, basin focus, frontier explo­ration, and others, underpinned by clear business pro­cesses and of course, geoscience. The service/oil com­pany boundary was challenged with the service sector beginning to take on more risk. Of course its easy to look back with ‘rose tinted glasses’, however looking forward it’s not yet clear what innovative business models will emerge from these low oil prices.

This lack of confidence in our industry is a concern, none more so than the North Sea, an area that is crying out for new business models and approaches. But, how do we get our confidence back? A big question, that surely has to be answered by industry leadership, both of individual companies, and institutions such as ourselves in the PESGB. We need to talk ourselves up and create a positive future for our industry.