Nov. 2000 Vol. 221 No. 11  International

Kurt S. Abraham,  Managing/International Editor

As OPEC flourishes, non-OPEC producers fail to keep pace

As the lame-duck Clinton administration pouts in Washington over its inability to send oil prices tumbling, OPEC seems to be in the early stage of a second golden age. Prices remain high, most cartel members have little or no spare capacity left to throw on the market, and these countries’ collective share of world crude output has been rising. On top of that, 1999 was an excellent exploration year in Iran and Saudi Arabia.

Given current global dynamics, including the latter item, above, it seems prudent to review a study of those twin pillars of future oil market domination – discovery and reserve replacement rates – conducted earlier this year by IHS Energy Group. Study results were released during the summer in IHS’ publication, World Petroleum Trends 2000.

Policy wonks at the U.S. Department of Energy (DOE) are likely not pleased to know that two OPEC members – Iran and Saudi Arabia – finished number one and two last year for total liquid reserves added. Iran added more than 6 billion bbl of oil, of which 5 to 6 billion resulted from the discovery of Azedegan field. Saudi Arabia found 2.05 billion bbl from just two new field wildcats (NFWs). Angola added more than 1.3 billion bbl. China finished fourth by finding more than 800 million bbl of oil in 35 or so NFWs. These are examples of countries that achieved high bbl/NFW rates. Compare them to Australia, which found a little over 100 million new bbl of oil but required about 75 NFWs to achieve that figure.

An interesting twist found by IHS analysts is that despite a global collapse in exploration drilling activity (NFW drilling was down 30% last year and off 40% in 1998), 1999 was a good year for oil and gas discoveries. In fact, Iran’s Azedegan find accounted for nearly 30% of all oil found outside North America. This made 1999 the best year for oil discoveries since 1991, which itself was distorted by a super-giant condensate find in Iran – the 18-billion-bbl South Pars field.

Last year’s oil discovery rate confirmed two trends for the 1990s. First, the global oil discovery rate was maintained despite greatly reduced drilling. Exploration efficiency increased through the decade, with an average 4.5 million bbl of oil found for each NFW drilled from 1995 forward, compared to half that rate from 1990 through 1994. Comparable natural gas statistics are distorted by the discovery of 436 Tcf at Iran’s South Pars field. Nonetheless, the gas finding rate was consistently higher than that for oil. The 85% increase in gas exploration efficiency since 1995 also was higher than that for oil.

The other trend observed was the concentration of oil discoveries in just a few countries. Of the 95 countries in which oil was found, well over 50% of the total was discovered in just 10 nations. Finds were concentrated in both the oldest and newest, major petroleum provinces – Iran and Saudi Arabia, and deepwater Brazil and Angola.

However, DOE’s desk jockeys should be alarmed that IHS analysts determined that the world is finding less oil than it produces – even though exploration success rates have improved, with more oil found per NFW. From 1990 through 1994, new finds replaced 62% of oil produced. That replacement rate dropped to 53% from 1995 through 1999. The inability to fully replace oil produced is particularly true for the top 10, non-OPEC countries. Although this group’s collective replacement rate remained at 68% throughout the decade, only Angola and Brazil succeeded during the last five years in fully replacing production with new discoveries. The replacement rate was lowest among some of the largest producers in this group – Mexico, the UK, Oman and Colombia.

In addition to the replacement rate falling, total remaining oil reserves in some of the largest non-OPEC producers have declined sharply since 1995; Mexico slipped 13%, Norway fell 14% and the UK dropped 20%. Ironically, the decline in remaining North Sea reserves since 1995 has almost exactly matched the combined increases in Angola and Brazil. Of the 10 most active wildcat-drilling countries, only two were in the top 10 nations with regard to amounts of oil discovered.

Brazil delays listing mature round qualifiers. The Brazilian petroleum regulation agency, ANP, deferred its announcement of companies qualified to bid in the Mature Oil Fields Licensing Round for two-and-a-half weeks. The deferral from October 9 to October 26 allowed ANP to have enough time to properly analyze all information and qualification documents presented by oil companies. At press time, 66 companies had registered for the sale, a total that was due to be pared down as ANP determined which firms best complied with all technical and financial requirements.

For this round, ANP selected 73 fields that previously were controlled by Petrobrás but which the firm declared to be economically unviable for its operations. Most of these fields are in the northeastern states of Alagoas, Bahia, Espirito Santo, Rio Grande do Norte and Sergipe. The fields cover 426 sq km and produce about 20,000 bopd. The blocks will be offered in 11 distinct groups of four to 11 fields, each.