Raymond James Energy Stat of the Week
by J. Marshall Adkins
Energy Stat: Despite Oil Meltdown, Frontier Exploration Is More Robust Than You Might Think
May 18, 2015
We started actively tracking frontier oil exploration in 2010, and last published a Stat of the Week on this topic in 2012. Above and beyond the opportunities for individual companies, our view has been that production from frontier countries - those with zero or minimal oil production currently - is likely to play a more visible role in global oil supply over time. So, how is this theme looking in the wake of the oil price meltdown? The answer - and it's probably counterintuitive - is that the price landscape, in and of itself, is not having much impact on activity. For one thing, these are all long-lead-time projects rather than short-cycle drilling. Also, since this is a material line item only for a few small-caps, it's not a needle-moving way for the industry to cut back on spending. On the other hand, there is no escaping the fact that frontier success has been elusive over the past three years. A clear success is Ghana, with multiple new finds (above and beyond turning into an established oil producer). There are also successes in the Falkland Islands and Uganda. On the other hand, notable disappointments include French Guiana, Greenland and Namibia. Today, we provide an update on the latest in 16 frontier countries/territories. Notably, 2015 drilling activity is taking place in at least 11 of them, showing that there is willingness to invest in high-risk emerging opportunities even in a ~$60/Bbl Brent environment. While this report focuses on oil, keep in mind that gas exploration in some frontier plays (often, though not always, LNG-oriented) is also taking place.
This is a summary of a much more detailed commentary. Please contact your financial advisor for the full report.
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