Mulling the cost of exploration

The oil industry, returning from a war footing to business as usual, has time to consider the poor exploration results of 2002. Liz Bossley considers whether drilling for hydrocarbons is the most cost-effective option, when reserves can be bought more cheaply in the market through companies or assets

DESPITE RISING exploration spending, 2002 was the second year in succession of poor exploration results for the oil and gas industry, according to Deutsche Bank. Exploration spending, cut so hard in the 1998-1999 oil price downturn, seems to have climbed back to pre-crash levels in 2002, says Deutsche Bank. However, exploration success has failed to rise in proportion with capital spending, and 2001-02 failed to replicate the reserves additions of the mid-1990s. It reports that the majors averaged a 79% reserve replacement ratio over the period 1995-2002. Bridging the gap Deutsche Bank's energy team says: The 2001 costs of adding reserves by drilling averaged $10.24 a barrel, while the compa