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Stalled resources – how big an opportunity is it?
A new study by Westwood Global Energy Group shows that 11bn barrels of oil and 36bn boe of gas in 119 discoveries of >100mn boe in size made between 2008 and 2016 is currently stalled, with no progression towards development. This oil and gas, potentially worth more than $65bn (assuming $1.2/boe for gas and $2/b for oil) and costing an estimated $24bn to discover, represents 40% of the volume found in high impact discoveries in the period, reports the consultancy.
The largest volume of stalled gas is in the Ruvuma-Rufiji Basin of Mozambique and Tanzania, where 166tn cf was discovered between 2010 and 2015 yet only 38tn cf has shown any sign of progression and 128tn cf of gas remains stalled.
Brazil has the largest stalled oil (and condensate) resource, estimated at 3.8bn barrels in 19 high impact discoveries in five geological basins.
Some 16.5tn cf of gas also remains stalled in Iraqi Kurdistan, 3bn boe of oil and gas (split 50:50) is stalled across the Kwanza and Lower Congo basins of Angola, and 14tn cf of gas remains in the ground in the Browse and Carnarvon basins of Australia, reports Westwood. More than 500mn boe are stalled in Nigeria, Malaysia, Gabon, Vietnam, the US, Romania, Uganda, Cyprus, Canada and the Falkland Islands.
Westwood has identified 26 different contributing factors for >100mn boe discoveries stalling. Above ground factors dominate, with the fiscal regime/gas terms in the host country, access to finance and portfolio prioritisation being the most common. Subsurface factors include fluid composition and reservoir quality and compartmentalisation.
In Tanzania for example, 14 deepwater gas discoveries clustered in five potential developments are stalled due to a combination of above ground and subsurface issues. The above ground issues are mainly related to protracted negotiations with the Tanzanian government on gas terms. Reservoirs are more compartmentalised than in neighbouring Mozambique, with lower resource densities and higher development costs.
In the Santos Basin of Brazil, six discoveries are reported to be stalled, mainly due to subsurface issues. The Jupiter discovery has large volumes of associated CO2 and development is possibly waiting on new CO2 handling technologies that be are being tested at Mero. The Dolomita Sul, Bigua and Bem-Te-Vi pre-salt discoveries are smaller than the average in the play due to small trap size and low reservoir quality and so were low in the priority list for Petrobras who relinquished the discoveries, notes the market analyst.
In Angola’s Kwanza Basin, seven pre-salt discoveries are stalled due to a combination of above ground and subsurface issues. The discovered hydrocarbons are gas rich, ~50% gas and only since 2018 have operators had the rights to the gas under production sharing agreements. The financial struggles of the operator Cobalt International and its subsequent replacement by Total didn’t help resource progression either, says Westwood.
Three key mechanisms have been identified that could break the log jam of stalled discoveries.
- Improved gas terms and gas market access – 36bn boe of the total 47bn boe of stalled resource is gas, gas condensate or oil and gas discoveries. In many cases gas was not the pre-drill exploration target and despite significant volumes being found, either market access, export infrastructure, or the terms are not in place to progress the discoveries. Explorers need to think through the gas commercialisation options even when exploring for oil. Even when gas is the target, gas terms, a lack of ullage in existing facilities and domestic politics can still be barriers to development.
- Appraisal to unlock upside – 46 stalled discoveries have not yet been appraised and stalled discoveries not yet declared commercial have significantly fewer exploration and appraisal (E&A) penetrations on average, compared to fields which have received final investment decision (FID). There may be some hidden gems where additional subsurface data from appraisal drilling could unlock upside potential in some cases.
- Application of new technologies – 10 discoveries with 2.5bn boe of resources are stalled due to subsurface challenges, which could be overcome with the application of new technologies including ultra-high pressure and temperature well completions in the Paleogene plays of the northern Gulf of Mexico and CO2 handling in the Santos Basin pre-salt play.
It is both ‘surprising and concerning’ that 40% of the resource found in discoveries >100mn boe size made between 2008 and 2016 remains stalled, with no appraisal activity or indications of progression to FID since 2016, says Westwood. It notes that these stalled assets are an opportunity for companies with the means to unlock them. Equally, they are a reminder to explorers to focus on value, not only volume. Better gas terms and market access could unlock a huge stranded resource. In other cases, new operators with new thinking could make the difference, concludes the market analyst.