In its Sunday 4th / Monday 5th August 2013 edition, Le Monde exploration published an article entitled “The complicated future of Oil Super-Majors”.
This article looks at the problem of the decline in production of these Majors, who are having more and more difficulty in finding and producing as much petrol and gas as they would like; the reason given is the fact that the oil deposits that are easy and inexpensive to mine are controlled by State Companies of the oil-producing countries and that, as a consequence of this, the Majors have to turn to projects which are technically much harder and complicated to implement.
This phenomenon does indeed exist but is it the only explanation of the difficulty the Majors are having in renewing their reserves?
Over the last 5 or 6 years a series of major discoveries has been made in hydrocarbons in general and gas in particular: shale gas in the USA, gas reserves in the Eastern Mediterranean region and Israel in particular, considerable reserves in Mozambique and to a lesser extent in Tanzania and Uganda, and vast pre-salt deposits in Brazil. All these discoveries have at least two new common characteristics: the first one is that these considerable reserves have been discovered in completely new hydrocarbon trends, and the second is that none of the Oil Majors were involved in these discoveries.
The American shale gas was initially implemented by small companies such as Chesapeake; the Israeli deposits were discovered by Noble, the Mozambique ones by Anadarko, Uganda’s by Tullow and the Brazilian pre-salt deposits by Petrobras. No Majors, although Petrobras is not a small company.
Exploration does of course involve luck, but the fact that none of the Oil Majors were present initially in these discoveries, which were over varied and wide geographic zones and over several years, leads us to ask whether this could be a strong tendency rather than just a question of luck. Are the Majors still capable of the creativity and audacity that allowed the Independents (and Petrobras) to make these recent discoveries?
The Majors have proved, these last few years, their know-how and competence for pulling off production mega-projects for which the unit of account is in billions of dollars or even tens of billions of dollars. The implementation of such projects requires extremely strict organization and continuous control involving complicated decision making processes based on significant comitology. One possible theory is that this work method, which is essential for big production projects but very complicated, has affected the Exploration activities by excessively blocking the necessary risk taking in this area.
In other words, by becoming Production champions, the Majors may have lost their Explorer souls.
In this hypothesis, the smaller companies don’t have the same problem as they haven’t implemented any mega-projects and their decision making protocols are much shorter and based on the trust they have in their teams rather than the processes.
If this is the case, the question that an Exploration / Production Major should be asking itself is whether it should adapt its setup to remedy its lack of success in Exploration or, on the contrary, if it should adapt its business model by leaving Exploration to smaller companies that it could take over post discovery (or that it could finance as independent companies), while bringing its expertise in the development of major Production projects that the smaller companies do not have. This solution has been retained by the Majors for many of the projects above, but probably by opportunism rather than deliberate and assumed strategy.
In conclusion, the key to further development of the Majors may lie in adapting their own internal organization as much as in resolving technical, political and financial problems that they’ve always been able to resolve successfully previously.