Ladies and Gentlemen, this conference is about ‘New Frontiers’ and I want to address that subject m the widest possible context. I don't just want to confine myself to describing where some of these new frontiers are and what challenges they yield, but I also want to consider the impact these areas are having on the way we work m the oil industry. And being foolhardy, I want to leave you with some thoughts of where the industry might be heading in frontier developments.
If you think about the investment options facing an international exploration and production company today, they boil down to about three:
we could spend more in mature basins where we already have access
either by enhancing recovery factors for existing reservoirs, or by developing new, and generally smaller, prospects
we could take advantage of the fundamental changes in the world's political map over the last 10 years, which has opened up access to new oil provinces (e.g., in Russia and its former republics). This could yield exploration opportunities, as well as the possibility of investing in refurbishment of existing fields
or we can target our exploration and development funds m frontier provinces, in particular deep water and to a lesser extent the offshore arctic, areas which until recently were perceived as sub-economic.
In practice, most companies will invest in a mixture of all three, but it' is important to recognise the scale of the opportunity m frontier areas. With 12% of the world's surface area under between 200 and 3000m of water, including over 250 largely unexplored sedimentary basins, there is a huge potential hydrocarbon resource in deep water. Estimates of oil volumes vary, but typically we could be looking at around 5% of world reserves - say 50bn barrels. I can only speak for my own company BP when I say that we are looking forward to a world m 2005 when in excess of 20% of our production " approaching half adon barrels per day " will be coming from deep water provinces. I suspect other majors are facing a similar future. Frontier provinces are therefore of Immense importance to the industry, and the central challenge we face IS keeping them cost competitive with more conventional investment options, a particularly tough target in what could be a sustained low oil price environment.
If you look at the industry's history of deep water and offshore arctic exploration drilling, you will observe a peak in activity around the early to mid-eighties, largely driven by oil price. But what makes the current surge in deep water activity different from before, are the much higher discovery rates and the fact that several deep water fields are now successfully m production.
I read recently that by the start of this year, of the 23 wells drilled offshore Angola, only eight had been dry holes Certainly success rates of m excess of 30% are not unusual in some deep water basins