24/11/18
Q&A: Chevron sees global exploration revival
London, 18 November (Argus) — US major Chevron and its peers are taking a more
prominent role in global frontier exploration as they push for scale and value
in oil and gas output in the face of an uncertain energy transition. Chevron
vice-president of global exploration Liz Schwarze spoke to Aydin Calik at the
African Energy Week conference in Cape Town, South Africa, earlier this month,
Edited highlights follow: How much of a role do you think exploration will play
for Chevron and the wider sector in the next 10 years? We believe the future of
energy is lower carbon, and we're leveraging our strengths to grow energy
delivery to an energy-hungry world. We see oil and gas being part of the energy
mix for longer, investing to reduce the carbon intensity of our existing
operations. Growing our oil and gas for longer, because it's a declining
business — as you produce it, you have to replace it. We replace our resources
to underpin our future in three ways. Exploration is one; M&A, buying other
companies, is another; and then technology is the third. So think in terms of
shale and tight development in the US, with drilling and completions
technologies; and the Anchor technology, bringing on the world's first 20k
[20,000 lb/inch², ultra-high pressure deepwater] production platform in the Gulf
of Mexico. That's technology. It's a new development, but it will help in the
long term. For exploration, at Chevron, we invest in exploring in our existing
assets — if we can find new oil and gas pools that we can tie into existing
infrastructure, it's a win... it comes on faster, creates a lot of value,
leverages existing infrastructure — but we're [also] increasing our investment
in more frontier areas, where we can build big, material positions at scale,
early and if successful, really build new businesses. That's what you see us
doing in places we've added acreage recently, like Brazil and Uruguay. We have
the block in Namibia, we're going to drill, and we're in Egypt and so forth. So
exploration is a very important part of Chevron's future, and because it's a bit
of a long-cycle game, yes, for exploration, 10 years is an easy horizon. And do
you think things might change in terms of what you're exploring for — more oil,
more gas? Oil is relatively straightforward to get to markets, because there's a
global market for liquids. If we're going to explore for gas, it'll be in a
place that has either an existing market or existing assets to market, for the
most part. Sometimes you explore for oil and you find gas. Sometimes search for
gas and you find oil — because it's model based particularly in these frontier
areas. So, you know, whatever mix we find we have to look at the development
scenario for that, so that we can bring as much of that product to market with
the highest returns possible for our shareholders. What are the biggest
challenges for explorers today? We'll focus on the frontier first. Chevron looks
at entering a new country or a new basin for exploration, really looking for
four things to be there. First, of course, are the rocks — a compelling
hypothesis that there are hydrocarbons at commercial scale. Second is a
supportive fiscal environment, with which, upon discovery, you'd have the
opportunity to create value for everyone. The third is access — the country has
to offer a way for an operator like Chevron to enter, whether that's through a
competitive bid round or through a direct negotiation; we'll also do farm-ins to
other people's acreage. And regular access. That hypothesis of where
hydrocarbons are can change through time. Having regular, predictable
opportunities to access acreage is important, and it is sometimes a challenge.
Some countries have opportunities for a while, and then they'll take things off
the market, and then you don't really have another way to invest, and that
creates a challenge. And then the fourth consideration is just the overall
welcomeness for us to deliver the work programme that we commit to — functioning
governmental organisations, all the way from environmental to operational
permitting. Where is the most exciting place to explore at the moment? Are there
any new Namibias around the corner? I hope so! Everywhere we enter, we have a
story. Sometimes it works and sometimes it doesn't work. But we've got a well
drilling in in Egypt now, so west of the Nile in the Herodotus basin — it's
called the Khendjer well. So Egypt, we're excited. Namibia, it's the hot story
of the past few years. In the Orange basin, we're in PEL90, and that well will
start notionally [on a] December timeframe. Think of a big deepwater exploration
well. Think of 90 days as an average. [We are] really very keen to see what our
block holds. Certainly, high hopes. And then we've added new acreage in Brazil,
the South Santos and the Pelotas basin, we signed a block last week in Uruguay.
And so, you know, some of that geology is what we call conjugate margin in
Namibia. And Angola and Nigeria. There are places in the world that are very
successful hydrocarbon provinces that are still under explored and we think have
a tremendous potential. And Nigeria deepwater is one. We had a lovely discovery
on the Nigeria shelf a few weeks ago — the Meji well. And then we added two
blocks in Angola earlier this year, deepwater. I'm getting a sense, not just
from Chevron, that exploration around the world is picking up? I think this is
true across the board. And one of the reasons that you explore is the idea that
there's likely a further advantaged barrel relative to some of the existing
discoveries. So there are a lot of stranded discoveries — either
cost-prohibitive, geopolitically challenged, any number of issues that prevent
some of the really big discoveries around the world from coming to market. From
an exploration standpoint, if you are able to discover at scale, develop that
and then bring it to market, it will be lower in the supply stack from a
breakeven perspective. And lower carbon intensity as well from the get go, and
it will find a place in the market. On Namibia, what we have heard from some
other operators is high gas content. This might make it more challenging. Have
you thought about that? So when we're thinking about entering a new basin, and
then when we're thinking about drilling the well, before we make those
investments, we're always thinking about what the development scenario might
look like. Because we've got to test that development scenario against our range
of resource outcomes and test, you know, whether it's going to be economically
viable. Or how would we make it economically viable? So for Namibia, we have
considered, what would you do at various gas contents? The first, simplest,
development is that you bring your production flow to your FPSO, compress the
gas and reinject it. You can do that, given the resource volumes at a commercial
outcome, Over time, I think it'll be interesting to see if there's a
broader-basin scale gas solution that comes to bear, whether that's pipe to
shore or LNG. It depends on the GOR [gas-oil ratio] and then it'll depend upon
the gas terms that the government provides. In the eastern Mediterranean, is
Egypt your main exploration prospect? Our focus is Egypt for exploration. When
we go into an area like Egypt, we try to pick something at scale, and then
high-grade from there. And so you relinquish the leases that, with additional
data, don't look as prospective as the other ones. Right now, our focus is on
block four. We're going to drill, and then we're also in [a block] north of
that, that someone else operates on our behalf, and we have a minority interest.
What about Algeria and its shale potential? To what extent do you think you'll
be able exploit those resources? And will you be signing something soon? Chevron
has been in conversations with the ministry, upstream regulator Alnaft and
Sonatrach since 2020. We signed MOUs, that was in the news. And then the big
milestone was 13 June of this year, where we aligned on two areas of interest.
And we signed heads of agreement to negotiate Chevron's entry into these two
areas of interest. And so that's ongoing now, and that's all I can say about
that. We have two areas, one in the Ahnet and one in the Berkine, and seeing if
there's a negotiated agreement that would have Chevron enter the country,
working with Sontrach to explore and develop those. Algeria is, again, one of
these very hydrocarbon-rich countries in Africa. A tremendous gas resource. So
we think it's a really strategic opportunity for Chevron, if we can get to a
negotiated agreement that's amenable to both parties. You know, significant
resources in an existing, vibrant oil and gas sector, access to markets through
pipelines and LNG for the gas. And so we believe at Chevron that we can bring
our global experience, and in particular our shale and tight expertise to bear
in Algeria. To help them explore and ultimately develop. But you think you can
do shale development there? Yes. I mean, the first piece would be exploration,
right? So, you know, even in shale and tight, the molecules are there, or you're
fairly confident the molecules are there. It's just, are the molecules
producible at a commercial scale? And so that's always the first phase — you
drill some pilots, look at your flow back, then optimise. And we believe
everything that we do in the Permian is potentially applicable, especially from
a factory perspective, right? And then the challenges are going to be things
like supply chain. How much more exploration potential is there left in the Gulf
of Mexico? Would you say, is it mature, or is it still much to play for? The
Gulf of Mexico tends to reinvent itself. So we still see plenty of potential
there. What's going on in the Gulf of Mexico right now are two critical
technologies. One is on the geophysics side — ocean bottom node acquisition for
exploration, which is giving us much better images of very complicated geology.
That's a critical technology evolution. And we believe that that will help
discern between prospects — point the way of where not to drill, and where maybe
to drill. And then the other one is, of course, the Anchor platform, which is
the world's first 20k. We are currently the only operator in the world that's
operating a 20k field, and so I don't know where that technology would be
applicable globally yet. But you know what we see? You've got to build the
technology, you put it on production, and then you realise, oh, okay, now I can
use this to really unlock some other areas. Still pretty, pretty excited about
the Gulf of Mexico. Send comments and request more information at
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