Oil finds hit a new low
A report issued last week by the International Energy Agency (IEA) paints a gloomy picture of the current state of the oil industry and the offshore sector in particular. According to the IEA, global oil discoveries fell to a record low in 2016 as companies continued to cut spending and conventional oil projects sanctioned were at the lowest level in more than 70 years. New finds declined to 2.4 billion barrels in 2016, compared with an average of 9 billion barrels per year over the past 15 years. The volume of conventional resources sanctioned for development in 2016 fell over 30% from 2015 to 4.7 billion barrels. The number of projects that received a final investment decision dropped to the lowest level since the 1940s. Blaming low oil prices for the decline, the IEA says it brings an additional cause of concern for global energy security at a time of heightened geopolitical risks in some major producer countries, such as Venezuela. However, the slump in the conventional oil sector contrasts with the resilience of the US shale industry where falling costs have attracted investment and boosted production helping to balance low activity in the conventional oil industry. With global demand expected to grow by 1.2 mb/d a year in the next five years, the IEA has repeatedly warned that an extended period of sharply lower oil investment could lead to a tightening in supplies. Exploration spending is expected to fall again in 2017 for the third year in a row to less than half 2014 levels, resulting in another year of low discoveries. The level of new sanctioned projects so far in 2017 remains depressed. The offshore sector, which accounts for almost a third of crude oil production and is a crucial component of future global supplies, has been particularly hard hit by the industry’s slowdown. In 2016, only 13% of all conventional resources sanctioned were offshore, compared with more than 40% on average between 2000 and 2015. Investment in the North Sea was around half of 2014 levels at $25Bn only slightly above spending on offshore wind in the North Sea, which has doubled to about $20 billion in the same period. However, there is a glimmer of hope for the long-term prospects of offshore with the US Bureau of Ocean Energy Management (BOEM) instructed by the Trump administration to develop a new five-year plan for oil and gas exploration in offshore waters on the US Outer Continental Shelf (OCS). The review of drilling bans in parts of the Atlantic, Arctic and Pacific oceans imposed by the previous administration could see them reversed and expedite permits for seismic surveys. Currently, only 1% of the OCS acreage is leased for oil and gas development with a quarter of that producing oil and gas. The BOEM estimates that the OCS holds around 90 Billion barrels of undiscovered, technically recoverable oil and 327 Tcf undiscovered, technically recoverable natural gas.