Oil Exploration Investments In the Modern Day
Explorers love to frequently trumpet exciting prospects. However, the typical success rate is just one in seven wells.
The Biggest Oil Discovery, Ever
Saudi Arabia’s Ghawar oil field is one of the biggest of oil finds. The onshore field is the largest in the world and is located some 200 km east of Riyadh.
It was discovered by the Standard Oil of California (forerunner of Arabian American Oil Company, later Saudi Aramco) in 1948. Standard Oil obtained concessions from the Saudi government for oil exploration and drilling.
Back then, Saudi Arabia was a backwater, sparsely populated country before a water-discovering expedition serendipitously discovered oil instead.
The 2,800 km2 super-giant has been divvied up into six parts with total reserves estimated at a mind-boggling 162 billion barrels of oil at the time of discovery. About 70 billion barrels of oil reserves and 90 trillion cu. Ft of natural gas remained at the beginning of 2013. Daily production is pegged at ~3.8 million bbl/d (barrels per day).
The Next Big ‘Gusher’
Not all discoveries are gilt-edged, and big discoveries do not always translate to stellar share performance–at least for the supergiants.
Take Exxon Mobil, for instance.
In May 2015, Exxon made what its executives described as a ‘fairytale discovery’ off the coast of tiny Guyana. At a time when discoveries are increasingly hard to come by, and almost certainly bound to be offshore in the deepwater in very complicated geologies, gushers don’t actually gush. Instead, they take ages to explore, develop and bring to production.
By all accounts, Exxon’s 14-strong string of discoveries should have investor radar going wild.
Exxon estimates its discovery contains more than 4 billion barrels of oil equivalent potentially producing 750,000 barrels per day by 2025. And it’s already developing for first production early next year.
So why did XOM shares actually shed more than 12 per cent from May to December 2015? And why are they now down 22 per cent since the discovery announcement?
That’s the problem with diversified supergiants. Investors get no real leverage to a specific discovery.
The real leverage is when a small-cap or a mid-cap makes a huge discovery and sets itself up to be acquired by a giant.
For the supergiants, there are no more ‘gushers’ that can make stock prices pop. Here on out, it’s only geopolitics, war, and the macro-economics of supply and demand that can really move the needle.
If you want to make money on exploration, look to the smaller players.