Crude Bulls Close 2017 on Highs as Discovered Oil Resources Dwindle

Crude oil futures close 2017 with record longs in both WTI and Brent and prices near two year highs. Bets are that the OPEC production cuts will be affective should demand rise. Bulls point to a record low year for oil equivalent discovered globally.

Crude oil futures close 2017 with record longs in both WTI and Brent amid prices at two year highs. Bets are OPEC production cuts will be affective should demand rise. Bulls point to a record low year for oil equivalent discovered globally. However it is the unconventional shale that changes the conventional equation.

 Discovered OIl Resources

Leading energy research group issued a press release before Christmas concluding that 2017 saw another record low year for discovered conventional volumes globally.

Sonia Mladá Passos, Senior Analyst at Rystad Energy said;

“We haven’t seen anything like this since the 1940s. The discovered volumes averaged at ~550 million barrels of oil equivalent per month. The most worrisome is the fact that the reserve replacement ratio* in the current year reached only 11% (for oil and gas combined) – compared to over 50% in 2012.”

Rystad shows 2006 as the last year when reserve replacement ratio reached 100%; largely thanks to the giant onshore gas field Galkynysh in Turkmenistan. The reserve replacement ratio measures the amount of discovered resources during the year relative to the amount of production of hydrocarbons in the same year globally. It disregards the production start-up date for the discoveries. With all prices languishing since the oil crash of 2010 just making it back over $60 this is not unexpected with exploration budgets slashed. Offshore in particular has been dramtically cut given the high breakeven and the ever decreasing cost of unconventional drilling.

Rystad said the average offshore discovery in 2017 held ~100 million barrels of oil equivalent, compared to 150 million boe in 2012. Passos noted “Global exploration expenditures have decreased year-over-year for three consecutive years now, falling by over 60% from 2014 to 2017. We need to see a turnaround in this trend if a significant supply deficit is to be avoided in the future.”

Unless we get a dramatic rise in oil prices we would have to agree with Passos when she said “Low resources per discovered field can influence its commerciality. Under our current base case price scenario, we estimate that over 1 billion boe discovered during 2017 might never be developed”.

Discovered volumes in 2017.

Senegal

Kosmos Energy discovered the Yakaar gas field after the 2016 discovery of Teranga. This could deliever a large LNG development in the future.

Mexico

Mexico had the Zama discovery through Talos Energy and the Ixachi discovery which helped add around 1 billion boe of recoverable resources for the country. Zama was of particular importance for Mexico.

Guyana

ExxonMobil and Hess have been on the front foot in Gyuana. They have added another 1 billion boe of recoverable resources through Payara, Turbot and Snoek.

Note: Rystad Energy does not expect the final*** volume of 2017 discovered resources to be significantly impacted by the results of exploration wells being drilled currently. The results of the ultra-deepwater well Lamantin in Mauritania, operated by Kosmos Energy, were reported on December 12.  Even though large prospective resources were expected from the well, the results were disappointing and the well has been plugged and abandoned. Another high-impact well is currently being drilled offshore Nigeria – Oyo Northwest – operated by Erin Energy. Rystad Energy expects the well results to be announced at the beginning of 2018. The most recent pre-drill estimate indicates resources of over 1 billion boe, which would mean a very positive start for the year.

Source: Rystad Energy press Release

From The TradersCommunity Research Desk

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