NAPE: A return to exploration

To break free of 'cookie cutter' mode, budgets must include money for exploration

The US oil and gas industry must break free of the current cookie cutter mode and dedicate a portion of budgets to exploration, said James C. Manatt, chairman and CEO of privately-held Thrust Energy Inc. at the NAPE Business Conference on Wednesday, August 19, at the Houston George R. Brown Convention Center.

In both a solo presentation and as member of a two-man panel, the Roswell, NM-based CEO emphasized the need for the oil and gas community to return to exploration, noting that companies must strive to find something new and valuable in a world of challenging industry economics.

"I know we're all struggling, but some portion of our budgets need to be dedicated to exploration," he said. "We're all after a marginal return and zero risk if we can get it, and at $42 per barrel, a lot of that doesn’t work."

In his remarks, Manatt said the US has "done its part" to stablize the global oil market by dropping rigs, pointing to Saudi Arabia's refusal to cut production as part of economic warfare that will keep the industry grappling with low oil prices for some time, adding that he doesn't believe we've seen the bottom. "We may have to test $38 [US$/bbl]," he noted.

Currently, Manatt said, the US is increasing supply, focused on farming in operations and taking no risk. There hasn’t been much in the way of exploration as the industry has been paying the price for proven acreage. Additionally, he said, companies are seeing marginal returns and declining prices.

Companies need to shed uneconomic properties and realize trading leverage.  "It's time to take 10%-15% of operating budgets and allocate them to big return potential," he said. "Don't walk in blindly," he cautioned, but view the current situation as an opportunity. "You're not going to get it any cheaper than you are right now," he said.

The key is to recognize what has not been seen before in the subsurface—and to do it ahead of the competition. These "solvable difficulties" come in the form of technical, land, logistics, and economic issues. But, he said, "just because some guy's Niobrara doesn't work doesn't mean someone else's won't."

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