Oil & Gas Industry Competitiveness Assessment Further Analysis on Australia s Position in the Exploration Value Chain March 2017
Global Oil and Gas Exploration Oil and gas exploration across the world has collapsed since the fall in oil price in 2014. Overall activity and the number of drilling rigs across Australia has followed a similar trend to the rest of the world. Overall Drilling Activity Since 2010, exploration activity in Australia and around the world has fallen by 70% and 50% respectively. Active Drilling Rigs The number of drilling rigs across the world has dropped by 42% since 2013, Australia has seen a decrease of 25% during this time. Source: Wood Mackenzie Source: Baker Hughes 2
Australia s exploration standing against the global peer group Australia s exploration sector is ranked 5 th out of 30 countries in the Oil and Gas Industry Competitiveness Assessment. Country Exploration Competitiveness Rank Brazil 1 Egypt 2 Norway 3 Russian Federation 4 Australia 5 China 6 USA 7 Malaysia 8 Nigeria 9 Algeria 10 While Australia s expenditure, activity and discoveries have decreased substantially, this is a result of the current low price environment and is in-line with the rest of the world. Brazil and Egypt are the top performing countries in the exploration phase of the value chain. This is a result of significant exploration and appraisal activity within both countries that has resulted in the Santos basin and Zohr field discoveries. A combination of ongoing activity, quality data, and high success rates relative to the peer group performance, has seen Australia make sizeable hydrocarbon discoveries in the last 5 years to 2015. To continue growing, the regulatory climate across the nation needs to encourage and support oil and gas exploration. While exploration is vital to the sustainability of the industry, in the current low investment environment, the primary focus should be on the Development & Execution and Production phases of the value chain. 3
Rationale for Australia s exploration standing Overall exploration activity and spend has reduced across the world, including Australia. However, supported by the availability of quality data, and relatively high success rates, the country has seen sizeable reserve additions. While overall exploration activity and spend around the world has been decreasing over the last few years, Australia still has a substantial amount of exploration activity in the unconventional space in the form of CSG exploration and drilling in Queensland, and some activity undertaken in the conventional space offshore Western Australia. Australia is fortunate to have an abundance of energy resources. Combined with extensive, mature and publicly available seismic and geological databases managed by the Australian government, this plays a part in the nation s high overall exploration and appraisal success rates of 41.7% and 83.1% respectively. Combining the factors of substantial exploration activity, quality data, and high success rates, Australia has seen sizeable hydrocarbon discoveries and reserves added over the last 5 years between 2011 to 2015, placing the nation 7 th overall in total discovery volume during this period. 2011 2015 Total Hydrocarbon Discovery Size for Top 10 Countries Source: Wood Mackenzie 4
Regulation in Australia s exploration sector Regulatory uncertainty and bans outside of Queensland and Western Australia are a major burden on continued exploration growth throughout the country. Queensland and Western Australian state governments have created environments that foster hydrocarbon exploration activity. Over 50% of respondents to the Fraser Institute (FI) Survey reported that the policies in these states encouraged investment in the sector. In NSW, Victoria and Tasmania, regulatory uncertainty, bans and moratoriums on continued hydrocarbon exploration has led to an almost complete halt in investment. The FI Survey found that 33% of respondents would not invest in these states due to the non-supportive regulatory environment. Between 2011 and 2015, only 2% of total exploration activities throughout Australia took place in NSW, Victoria and Tasmania. For the continued success of Australia s exploration sector and the future energy security of the nation, other states must adopt a regulatory framework that promotes hydrocarbon exploration in a stable, environmentally sustainable, and socially acceptable way. Perception of Australia s Oil and Gas Regulation across States Source: Fraser Institute 5
The future of Australia s exploration sector While Australia performs well in the exploration phase, this remains meaningless if the discovery of hydrocarbons cannot be monetised at scale and at pace. Australia performs well in the exploration phase of the value chain due to the nation s ongoing activities, quality data, high success rates in exploration and appraisal, and sizeable discoveries and reserve additions over 5 years from 2011 to 2015. The low oil price since 2014 has caused a significant decrease in exploration globally. For Australia s Oil and Gas exploration sector to flourish when oil prices rebound, it is essential to create an environment where regulation promotes and supports an active exploration sector. While Australia can make further progress in the exploration phase, the primary focus should be on the Development & Execution and Production phases of the Oil and Gas value chain. The country s weaker performance in these phases provides greater opportunity for improvement. Ultimately, if a country cannot deliver molecules to the market competitively, its ability to find them is not important. 6
Disclaimer: The material contained in this Report, including any updates to them, are made available to National Energy Resources Australia ( NERA ) under the business terms agreed between Accenture Australia Pty Ltd ( Accenture ) and NERA. The use of these materials is governed by the terms and conditions of the Agreement, and Accenture makes no warranty or representation about the accuracy or completeness of the information and data contained in these materials. The opinions expressed in these materials are those of Accenture, and nothing contained in them provides a comprehensive analysis of the financial position or prospects of any company or entity. If, notwithstanding the foregoing, you or any other person relies upon these materials in any way, Accenture does not accept, and hereby disclaims to the extent permitted by law, all liability for any loss and damage suffered or arising in connection with such reliance.
Appendix: Exploration Metrics Metric Source Drilling 35% Onshore Exploration Activities Exploration Success Rate Appraisal Activities Appraisal Success Rate Total Well Cost Offshore Exploration Activities Exploration Success Rate Appraisal Activities Appraisal Success Rate Total Well Cost Hydrocarbon Discoveries 60% Hydrocarbon Discoveries (Last 5 years) Seismic Data Quality 5% Seismic Data Quality (Survey) Fraser Institute Global Petroleum Survey 8