A new analysis by UK-based consultants Wood Mackenzie has found that the average return on exploration for conventional hydrocarbons in the past three years was under 15%. This figure assumes a future oil price of $70 per barrel. Back in 2005, WoodMac found that the same return was achieved for a $30 oil price.
WoodMac VP Andrew Latham explained, ‘In the last two years, development costs have risen, especially offshore. The cost of acquiring new acreage in prospective basins has also increased and many of the most petroleum rich parts of the world are now off-limits to international companies. The average cost of a well has risen by 60% since 2004 and rising taxes have adversely affected returns. Many changes in contract terms have yet to impact revenues because the bulk of recent exploration is conducted on licenses negotiated in the 1990s, with more favorable fiscal terms. Ultimately, accepting moderate returns at high oil prices may be the only way for companies to continue to be active in conventional exploration for hydrocarbons.’
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