(EnergyAsia, October 23 2016, Sunday) — Oil and gas explorers are losing their appetite for Australia with investment expenditure now at their lowest in over a decade, said the Department of Industry, Innovation and Science.
In its latest quarterly update, the department reported that petroleum exploration expenditure in Australia had declined for a sixth consecutive quarter in June, falling by 34% to A$283 million. (US$1=A$1.3).
“Exploration activity now stands at its lowest level since the March quarter (of) 2006,” it said.
The report confirms consultant EnergyQuest’s earlier finding that the oil price collapse since mid-2014 is having a devastating impact on Australia’s upstream oil and gas sector.
CEO Graeme Bethune said last year’s drought in offshore drilling marks the beginning of “a prolonged period of very low Australian offshore activity” despite the large take up of new acreage in offshore release programs between 2012 and 2014.
“The total number of exploration and development oil and gas wells drilled in Australia nearly halved, falling from 1,534 in 2014 to just 821 in 2015, including exploration wells falling from 119 to 54,” said Dr Bethune.
“In that time, exploration spending fell from A$1,034 million in Q4 2014 to A$446 million in Q4 2015. This is Australia’s lowest oil exploration spend in a decade.”
Production is in even worse shape than exploration, with last year’s output of 76 million barrels the lowest since 1970.
Low oil prices have resulted in “significant” downwards revisions of reserves, leading to negative reserves replacement ratios over the past year, said Dr Bethune.
This has greatly reduced the valuation of oil and gas companies listed on the Australian Securities Exchange (ASX), which saw its energy index fall to a 11-year low in January.
The reduced investment in exploration will further depress future production, with the Department of Industry predicting Australia’s output of crude and condensate will fall by five percent to 301,000 b/d in the current fiscal year to June 2017. Last year, production fell by 3.5% to 317,000 b/d.
BP confirmed the industry’s growing risk aversion to Australia with its announcement to discontinue its A$600-million exploration programme to drill in the Great Australian Bight (GAB) off the coast of South Australia state.
The British major said the project will not be able to compete with other upstream opportunities in its global portfolio in the foreseeable future.
“We have looked long and hard at our exploration plans for the Great Australian Bight but, in the current external environment, we will only pursue frontier exploration opportunities if they are competitive and aligned to our strategic goals. After extensive and careful consideration, this has proven not to be the case for our project to explore in the Bight,” said Claire Fitzpatrick, BP’s managing director for exploration and production in Australia.
Dr Bethune said Australia’s politicians are adding to the industry’s problems as they are “killing what little oil and gas exploration activity there is, with Senate inquiries now into unconventional gas as well as proposed oil and gas exploration in the Great Australian Bight.”