Studies concur on exploration slowdown

WoodMacKenzie and IHS Energy studies show decline in E&P spend, development at record high.

According to a Wood Mackenzie study of the 10 largest quoted western oil and gas companies, development expenditure on upstream projects is at record highs having risen from an aggregate of US$35 billion in 1998 to US$50 billion in 2003.


WoodMac’s Derek Butter said, ‘This has been driven by expenditure on projects in the US Gulf of Mexico, deepwater West Africa and the Caspian. We expect these high levels to be sustained over the period 2004-2006 before dipping in 2007-2008.’


But bullish development contrasts with a sharp downturn in exploration from over US$11 billion in 1998 to around US$8 billion in 2003, resulting in a similar fall in new discoveries.

Cost savings?

Butter attributes the fall to post merger ‘cost synergies’ which have cut exploration budgets. The rise in development spending has ‘squeezed out’ exploration dollars as companies sought to reassure on financial discipline.

IHS Energy

The second report, from IHS Energy, also notes the slowing pace of exploration over the past five years, with the big three’s spend down from $5.35bn in 1998 to a paltry $3.25bn in 2003.

Production paradox

The Financial Times recently highlighted a paradoxical effect from high oil prices. Production sharing agreements mean that high prices may actually reduce oil output as pre-determined profit quotas are met by lower production thresholds!

This article originally appeared in Oil IT Journal 2004 Issue # 10.

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