JOHANNESBURG (miningweekly.com) – Conventional oil and gas discoveries outside North America have fallen to the lowest level since 1952, with recoverable resources of only 12-billion barrels of oil equivalent having been discovered in 2015.

Analysis from NYSE-listed IHS, which was published on Tuesday, showed that the volume of oil discovered in 2015 had fallen to 2.8-million barrels – a record low since the ramp up of oil and gas exploration began after the World War II.

Conventional gas discoveries had exceeded oil discoveries for the fifth year, IHS reported.

Lead author of the ‘IHS Energy Conventional Exploration and Discovery Trends’ report, Leta Smith, described the decline in discovered volumes for conventional oil outside North America as “dramatic”.

“We’ve seen four consecutive years of declining oil volumes, which has never happened before. The bottom has completely fallen out for conventional exploration, and the result portends a supply gap in the future that is going to be challenging to overcome. In the current cost-cutting environment, the outlook for 2016 discovery volumes is not likely to be better, either,” she commented.

With the significant drop in oil prices from a high of $100/bl in 2014, many companies have slashed exploration budgets repeatedly to address costs and falling earnings – and have continued to do so in 2016. As a result, IHS said exploration and appraisal (E&A) drilling for conventional resources fell sharply in 2015, exacerbating the yearly drop in resources found. Last year, less than 4 300 conventional E&A wells were drilled outside North America, compared with 5 200 conventional E&A wells drilled globally in 2014, and nearly 5 300 E&A conventional wells drilled in 2012, which was the peak year for E&A wells drilled during the years 2005 to 2015.

In deep-water (1 000 ft deep to 5 000 ft deep), Smith said the number of E&A wells drilled worldwide dropped by more than 20%, while ultra-deep-water (greater than 5 000 ft deep) E&A drilling declined by more than 40%, compared with 2014. Deep-water activity in 2015 also showed a marked shift toward appraisal drilling as a portion of total exploration compared with prior years, and Smith said IHS researchers expected this trend to continue into 2016.

The analysis addressed conventional oil, and did not include North American shale.

Smith said that one of the most striking developments had been the shift of investment by large independents from the international arena to the US as the shale opportunity opened up.

“Until they shifted their budgets to focus on shale projects in the US, many of these companies were among those active in international exploration, but that changed rapidly as they pulled back from the international arena. And now, even with the shift to US shale, exploration budgets have been cut dramatically during the last year, owing to the downturn in price.”

Smith added that companies were “laser focused on cost containment and extracting resources from previously discovered or developed assets”, where risks and costs were lower, and project cycle times were reduced, until prices showed some recovery.

“The major implication of this conventional discoveries drop is that declining discovery volumes, combined with anticipated low exploration and appraisal drilling activity for the near future, will create a ’hole’ in oil and gas operators’ portfolios and eventually negatively impact production,” Smith said.

“This would be beyond the impact of current low oil-prices – more likely in the five- to ten-year range, which is typical between discovery and first production.”

IHS researchers also observed that tight (shale) oil in North America was not enough to solve the discoveries shortfall.

“Despite its contributions to North American and global supplies, and extraordinary impact on portfolios and investment strategies for many companies, renewed growth in tight oil alone cannot cover the difference in the coming supply gap,“ said IHS Energy VP and a co-author of the IHS discoveries analysis Jerry Kepes.

“IHS is forecasting global tight oil production in 2040 to still be in the range of 10% to 15% of total global oil production, so the world market will still need significant conventional exploration discovery and production.“

The lack of new discoveries, Kepes said, would also increase pressure on operators to develop discoveries already made, grow reserves in their producing fields with improved recovery techniques, change portfolios and investment strategies, or use mergers and acquisitions to restock portfolios in the medium term.

“Conversely, the overall dearth of exploration activity represents an opportunity for some companies, since explorationists have determined that exploration activity will be much less expensive through this period,” Kepes continued.

“Some E&P companies are poised to take advantage of this cost-savings and may see attractive exploration results, even if the overall trend for industry remains more challenging.”