Searching questions

For the purposes of the acronym, “production” comes before “exploration” in the name of the Australian Petroleum Production & Exploration Association, which is kicking off its 55th annual conference in Melbourne today; however, in the real world, “exploration” very much comes before “production” in the oil and gas business.

The focus in eastern Australia at present is on the development of the LNG export projects centred on Gladstone and the need to drill lots of onshore wells, mostly for coal seam gas but also for conventional gas, to meet their voracious appetite, but this is only part of the story.

The long-term growth of the industry still depends on exploration — for most of its life, including the 11 years I was its executive director, APPEA was the Australian Petroleum Exploration Association and had a drilling rig in its logo; the change is recognition of the phenomenal LNG growth here that will see 13 new export trains come online between now and 2018, pushing up this country’s international gas sales some 260 per cent.

Nonetheless, the long-term future of the industry still depends on the oil and gas search — onshore in such areas as New South Wales and in the cross-border Cooper Basin as well as in remote parts of Western Australia and in some areas of the Northern Territory; offshore in areas such as the Great Australian Bight, real frontier country for explorers.

Not to be ignored, too, is the potential of shale oil and gas deposits, an endeavor still in its infancy here despite the sector’s huge progress in America.

As APPEA is pointing out at its Melbourne forum, (a) oil and gas can’t be produced without first locating new resources and (b) these cannot be discovered without drilling wells.

Exploration is an uncertain business; more wells fail than succeed around the world but even the failures are useful because of what they tell geoscientists about the ground on which they are working.

One of the older petroleum industry sayings is that “there is no such thing as a failed well.”

While much of the current political and media fuss is about onshore petroleum activity, and the opposition its is encountering from radicals opposed to fossil fuel development as well as worried rural communities, the bulk of Australia’s oil and gas wealth to date has flowed (and is flowing) from offshore activity — and here the exploration picture is not especially rosy.

APPEA is pointing out that the rising cost of petroleum exploration — true, too, of onshore costs — has not surprisingly coincided with a reduction in the number of Australian offshore wells being drilled and, of course, the current global oil price environment is a further impediment.

The association reports that the number of offshore wells being spudded fell by more than two-thirds between its peak in 1998 and the past year. The decline really began in 2003 and in this time frame the total cost of search exploration has risen five-fold. The average bill for an offshore well today is more than $130 million. Despite the decline in wells drilled, expenditure on offshore exploration in Australian waters, measured in dollars of the day, is at a record $2.5 billion (the 2013 bill).

The challenge for the industry in the rest of this decade, and beyond, as its low-cost fields become depleted, is to pursue more expensive resources via gas from coal seams, targets in still more remote parts of the Outback and offshore.

For geoscientists and their bosses — and corporate shareholders — one of the most interesting areas is the Great Australian Bight.

BP, Norway’s Statoil, Chevron and others see similarities between the region, which covers more than 24,000 square kilometres and is in relatively deep water, and another ancient river delta (the Niger) in West Africa.

APPEA conference proceedings have included papers speculating for a number of years about the chances that the Bight could deliver a major new oil province for Australia and the BP activity (it will drill four wells over a campaign of 18 to 30 months) follows five years of study.

Petroleum exploration is a complex business, not just in science and engineering terms; many factors, including policies, regulations and the animal spirits of the market, play on whether seismic activity is undertaken and wells are drilled — and some “successful” wells are followed by a string of less-encouraging ones in the same geological area.

For Australia, the past five decades have seen explorers experience great highs and some dramatic lows, but the successes have been sufficient to keep up interest in this country in a marketplace for search dollars that is both global and very competitive.

Politicians can’t do much about geology but they can ensure that they don’t build unnecessary hurdles for investors.

This year, and not for the first time, the industry will be using the APPEA conference to send a message to Canberra and the State and Territory capitals that one of the most important contributions governments can make to supporting the oil and gas search is to improve the efficiency of their approval processes.

The radicals, of course, want the exact opposite and how legislators balance economic needs with political issues (especially in marginal seats) is what will decide how all this plays out over the rest of the decade.

 

 

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