Wood Mackenzie

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Wood Mackenzie says Europe’s 17bn boe of yet-to-find reserves means there’s still plenty to play for

EDINBURGH/SINGAPORE/HOUSTON, 4th September 2013 – At Offshore Europe in Aberdeen, Wood Mackenzie presented its view of the role of independent oil and gas companies globally. This peer group has been at the forefront of conventional exploration, playing a key role in opening up giant new plays.  With the Independents now taking an increasingly large share of license awards across Europe, Wood Mackenzie says they are attracted by favourable project economics, higher value per barrel than any other region and that together, European basins hold the same potential as the world’s number one ranked Santos Basin in Brazil, with 17 billion barrels of oil equivalent (boe) of yet-to-find oil and gas volumes.

In his paper, titled ‘Independents – staying ahead of the game’, Simon Flowers, Head of Corporate Analysis for Wood Mackenzie explores the role of the Independents in exploration and production. “The Independents have been at the forefront of conventional frontier exploration globally for the past five years, playing a key part in opening up giant new plays and have enjoyed huge success around the world,” Mr Flowers says. Some of the recent success stories that Mr Flowers highlights are: Anadarko in East Africa’s Rovuma basin; Cobalt’s Angolan pre-salt discoveries; Noble’s Levantine basin finds in the Eastern Mediterranean and the play opening discovery by Tullow in French Guiana.

“Conventional exploration is still the best way for the Independents to create value, with returns on exploration averaging 15% over the last ten years. New frontier acreage acquisition is high on the agenda for the world’s top explorers, with many vying for stakes in deepwater basins across Latin America, Africa, Australia and South East Asia. But in order to attract the capital to continue to take on these high risk exploration opportunities, the Independents increasingly need to demonstrate a track record in value creation,” Mr Flowers continues.

Mr Flowers suggests that although Europe may no longer be the focus for many of the world’s top explorers, it can offer favourable project economics compared to the rest of the world, which is attracting the smaller Independent companies looking to balance risk and reward. Europe still has a key part to play in the Independents’ portfolios: “There is no doubt that discovery sizes in the North Sea are shrinking with maturity, - the average is discovery size in the North sea is 50 million boe over the past ten years - but the economics  can be attractive. The value per barrel in Europe is higher than any other region - $3.22 per boe compared to the global average of $1.23 per boe - based on our analysis of undeveloped discoveries and this reflects the infrastructure and stable fiscal regime in place. It is this mix of risk and reward that is attracting the Independents that we now see taking an increasingly large share of license awards across Europe,” explains Mr Flowers.
 
Mr Flowers qualifies how much there is still to go after in Europe: “After 50 years of extensive oil and gas development, Wood Mackenzie estimates that in total Europe’s major offshore basins have 17 billion boe of yet-to-find (1) reserves – equal to our reserves estimates for the Santos basin in Brazil, the world’s top ranked basin, so there is still plenty to play for. ”

“There are still a number of untested frontiers in and around the continent, including the West Barents, Greenland and The Eastern Mediterranean, and there is also scope to develop unconventional plays in the UK, France, Turkey and elsewhere. Success could re-ignite interest in the Europe, especially among the bigger industry players,” adds Mr Flowers.

What can’t be overlooked, Mr Flowers points out, is that for many explorers North America is now the centre of the universe and that Independent oil companies have been at the heart of the renaissance. While Wood Mackenzie’s analysis shows that conventional oil and gas still delivers value, the rapid uptake of developments in North America has drawn capital away from the international arena, to unconventional oil and gas assets. Mr Flowers says: “In some respects these assets across the pond are lower risk, with tight oil production expected to reach 3.5 million barrels per day by 2015 – which is as much as all of North West Europe combined.”