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Hot oil shares

Created:

5 November 2009

Written by:

Martin Li

The world has vast proved energy reserves of 1.3 trillion barrels of oil and 185 trillion cubic metres of natural gas, according to BP statistics. Even if we were never to find another barrel of oil or gas, that's still enough to let us continue consuming oil at current rates for over 40 years and gas for over 60 years. With such reserves, and more being found, it's hard to imagine 'peak oil' – beyond which point production enters terminal decline – happening any time soon.

The 'easy oil' has been found

However, what the statistics don't show is that exploration is getting tougher and more expensive, and the costs of drilling an unsuccessful well are surging. David Bamford, director of Finding Petroleum and non-executive director of Tullow Oil, warns: "The numbers and data are all beset by uncertainty. A lot of the resources are in difficult places that require lots of investment and long lead times. These regions are politically challenging and drilling is getting deeper and tougher." BP echoes these sentiments, saying: "The geologically 'easy' reservoirs were found long ago".

Tullow's recent stream of successes in the Albert Rift in Uganda makes exploration look deceptively easy: from 22 wells drilled over the past two years, Tullow made a staggering 18 oil discoveries and seven gas discoveries.

However, the latest well, Ngassa-2, illustrates the growing challenges that even a successful campaign faces to find and then produce hydrocarbons. Drilling at a 30-degree angle to target a reservoir beneath Lake Albert, the first wells collapsed and had to be re-drilled. Tullow finally struck oil, but the waxy quality of the oil means it needs to be heated or chemically injected to make it flow. Developing this find could involve building a 1,200km heated pipeline. Offshore exploration involves substantially greater challenges.

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