New explorers will have to look for smaller structures, drill deeper for gas and examining unconventional reservoirs.
Middle East needs to focus on making new hydrocarbon discoveries
As I argued last March, the Middle East needs to be more active in exploring for new hydrocarbon resources. Adnoc’s offer last week of exploration blocks for direct bids is a first for the emirate. If the process is managed well, it will help refresh its petroleum sector, as well as setting the pace for other regional exploration.
There are four blocks on offer onshore, which wrap about the Adnoc Onshore area, and two offshore which lie to the west of the Adnoc Offshore fields. One of the onshore blocks covers Abu Dhabi city and the adjoining islands.
The company estimates the blocks hold billions of barrels of oil and trillions of cubic feet of gas, spread among existing undeveloped discoveries, and 110 prospects (well-characterised potential fields which require confirmation by drilling) and leads (which further work can mature into prospects).
It is not surprising that with some of the world’s largest fields, such as Zakum, Bab and Bu Hasa, adjacent, that these areas are very promising. But still, new explorers will have to look for smaller structures as well as new geological concepts and subtler hydrocarbon traps, drilling deeper for gas, and examining unconventional reservoirs.
Competitive bidding is the right way to go, rather than bilateral negotiations. It should enable Abu Dhabi speedily to get the best deal for its resources, while still leaving companies an incentive to explore aggressively.
Adnoc has indicated it should be open to a wide range of companies willing to qualify. Supermajors with a long history in Abu Dhabi – ExxonMobil, Shell, BP and Total – know the geology well, but new entrant Eni has one of the best global recent exploration track records. Smaller firms, as long as they meet safety standards and are sufficiently financed, will bring new ideas and may explore fields too small for the super-majors.
The Adnoc offering has some question-marks. New gas would be very welcome to meet growing demand, particularly if it is sweet (not containing hydrogen sulphide, which is toxic and pushes up development costs). But how will possibly smaller or more marginal new oil fields be prioritised against expansion of existing giants, if by 2024 or so overall production is still constrained by Opec limits? And will new entrants have ready access to Adnoc’s existing infrastructure of pipes and processing plants?
The global oil industry’s recent exploration record worldwide has been pretty dismal. Plenty of gas has been found, off Egypt, north-west Africa and east Africa. ExxonMobil has unearthed what looks like a major new oil province in deepwater Guyana in South America, and Statoil (soon to become Equinor) has made some impressive discoveries around Norway. Smaller, entrepreneurial companies such as Kosmos in Ghana, Mauritania and Senegal, Cairn in Senegal, and Tullow in various parts of Africa and Latin America, have had sterling successes.
But in the last few years, despite heavy investment, impressive technology and new geological concepts, finds of oil have been back to the level of 1940. Many smaller firms have over-hyped their prospects, making it impossible for the sector as a whole to raise finance. This has not yet mattered too much, because of the boom in unconventional oil which is easily found (if less easily produced). But more balance and scope of new resources is desirable.
The opening of Mexico, where large and mid-size international firms have bid aggressively and already made some promising discoveries, shows the appetite for high-quality acreage. And where better for fresh exploration than the leading Middle East oil producers, hardly touched over the past two decades outside a few spots such as Kurdistan, south-west Iran and Saudi Aramco’s gas hunt.
Adnoc’s offering is the most interesting but not the only recent regional exploration offering. Bahrain has made headlines with its offshore shale oil find, which will at some point open to international investors.
Iraq’s fifth bidding round includes 11 blocks along the Iranian and Kuwaiti borders, though the ministry of oil caused consternation among potential bidders by bringing the date forward to this month, giving very little time to analyse the new contract.
In the northern UAE, Ras Al Khaimah has historically produced modest amounts of oil and gas. Now, with supplies from the Omani exclave of Musandam drying up, the state firm RAK Gas has offered to explorers its entire territory, onshore and offshore, divided into seven blocks. It also has a new contract model, which it feels will be appealing. The geology is complex, and likely discoveries not giant, but RAK’s industrial sector offers a ready market for gas.
Egypt has sought to build on the success of the giant deepwater Zohr gasfield by beginning initial surveys of its unexplored western Mediterranean and southern Red Sea waters. Oman, which has never found offshore oil or gas except in Musandam, now has a discovery near Masirah island on its south-east coast. And Lebanon, hoping to join the east Mediterranean gas boom, has finally awarded three offshore blocks.
Some of these countries are looking to revitalise falling or small-scale production, or begin it for the first time. Others, Abu Dhabi and Iraq foremost, are taking the next step on a strong legacy. For all, matching attractive terms for investors to the quality of their geology is the key.
Robin M. Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis