Investing in Oil and Gas: Top Destinations for 2011

Oil and gas production from established and known reserves is declining worldwide. Various big oil and gas fields have reached peak production and the rate of new exploration has slowed. Oil and gas production in the UK, for example, reached peak production in 1999 and has been declining steadily since.

Oil and gas companies are therefore exploring new areas for conventional and unconventional oil and gas reserves to maintain current production levels and are wading into relatively unchartered waters across Asia Pacific, Africa, Latin America and the Middle East.

Several African countries such as Uganda, Mozambique and Madagascar have emerged as major areas of interest, while in Asia Pacific, exploration in China is paying dividends.

At the furthest end of the earth, the Arctic has also begun to reveal its resources and experts are now claiming as much as 22% of the world’s undiscovered and technically recoverable oil and gas could lie within arctic territories.

Using detailed market research from GlobalData’s ‘Top Oil and Gas Investment Destinations in 2011’, we find out where prospectors are heading in 2011.

Unconventional oil and gas resources

Technological advancements have helped make the development and exploitation of unconventional resources like shale gas, coal bed methane, tight gas and oil sands much more economical.

Canada’s oil sands in Alberta can produce significant amounts of oil as new technology is now making recovery economical on an increasing scale.

As per the forecast of the US Energy Information Administration (EIA), the annual growth rate of unconventional production will be above the annual growth rate of conventional production.

According to the EIA forecast, by 2035, the world’s total conventional production will be around 97.1 million bpd, whereas the unconventional production will be around 14.6 million bpd.

The development of the unconventional gas market in North America and Asia-Pacific has changed the market dynamics of the global natural gas industry. Significant success of unconventional gas has spurred huge interest in the industry which is all set to contribute majorly to global natural gas supplies.

US shale gas success stirs global shale gas exploration and production

Building on the success of the US gas shales, companies are now starting to pursue overseas gas shale exploration in prospective areas such as Europe, Australia, India, and other countries.

Shale gas development has changed the overall dynamics of the natural gas industry in the US, leading to a substantial increase in supply. The unconventional gas production in the US is expected to increase at an average annual growth rate (AAGR) of 2%.

Asia has vast deposits of shale gas stored in basins across India, China and Indonesia. Exploration is already under way to find out where the key shale areas would be in these countries and how much gas would be available.

The Oil and Natural Gas Corporation (ONGC) from India has recently discovered shale gas at a pilot project in West Bengal (a state in eastern India). The discovery is significant although the well is still under assessment as India is the first Asian country to discover shale gas outside the US and Canada.

Huge interest in shale gas potential in Poland has made the country another key area for shale gas exploration. Major international oil companies (IOCs) like ExxonMobil Corporation, Chevron Corporation, ConocoPhillips, Talisman Energy and Marathon Oil have accumulated significant acreages in prospective shale gas basins in the region.

Pre-salt discoveries transform Brazilian potential

Huge discoveries made in Brazil’s subsalt basins have attracted the interest of oil and gas players globally. The subsalt basins are expected to change the fortunes of major oil companies with an interest in these basins.

Brazil’s offshore pre-salt area has generated huge interest across the global oil and gas industry since the announcement of the giant, Petrobras-operated, Tupi oil field discovery in 2007 in the offshore Santos basin.

Brazil will hold its first auction of pre-salt oil and gas blocks in 2011 under the new production sharing regime. The first pre-salt auction is expected to include some of the reserves discovered in Brazil’s huge Libra field, which have been estimated by Brazil’s Oil Regulatory Agency ANP as holding recoverable reserves of between 3.7 billion and 15 billion barrels of oil equivalent.

Canadian oil sands attract major share of investments

The total production capacity of the existing oil sands projects in Canada is approximately 1.7 million barrels per day (mbpd). The total production of the oil sands mining and in-situ projects under regulatory review is around 1.4mbpd and the total production of the oil sands mining and in-situ projects that have been announced is around 1.3mbpd.

Recently, Cougar Oil and Gas Canada entered into an agreement to acquire a 50% working interest in approximately 47 sections or 30,000 acres of heavy oil prospective lands in the Manning area of northern Alberta, from Tamm Oil and Gas Corp.

In March, 2011, Athabasca Oil Sands Corp. completed the acquisition of more than one million acres of (100%) petroleum and natural gas (P&NG) rights in the deep basin area of north-western Alberta. Alberta Oilsands (formerly known as Platform Resources) completed the acquisition of four additional sections of oil sands rights immediately offsetting its proposed Clearwater phase I project site in November 2010.

Middle East and Africa drive investment growth

Countries in the Middle East are focusing on developing their oil and gas upstream sectors. In September 2010, Saudi Aramco made an announcement of the discovery of huge unconventional gas reserves in Saudi Arabia. Iraq’s announcement of the increase in oil reserves was followed by two other announcements by Middle East countries.

On 11 October 2010, Iran announced an increase in its oil reserves by around 8.77% from 138 billion barrels to 150.1 billion barrels. On October 21, 2010, Kuwait announced an increase of 12 billion barrels of crude oil reserves (from 99 billion barrels to 101.5 billion barrels).

Being the only Middle Eastern country to allow foreign firms to operate in its oil fields, Iraq is focusing on its rebuilding strategy. The announcement of an increase in oil reserves in Iraq is also drawing the attention of many investors that could profit from investing in Iraq’s oil resources, which in turn would contribute to Iraq’s economic development.

Offshore Leviathan prospect holding around 16 trillion cubic feet of natural gas is Israel’s largest natural gas find and could transform the country into an exporter of gas.

Africa, especially West and North Africa, have proved to be a major oil and gas producer in the last few years. However, there still remain large unexplored areas in Africa, which are expected to hold huge potential.

Foreign oil and gas companies, attracted by new discoveries in Ghana, Uganda and other parts of Africa are now looking towards unexplored countries in the region as lucrative areas for entry in the upstream sectors. These countries lack capital to explore for oil and gas and offer attractive terms to lure foreign companies.

After the giant Jubilee field discovery in 2007, Ghana has emerged as a lucrative region for oil exploration and production. Since then, Tullow Oil and its partners have drilled a number of successful exploration and appraisal wells in the country.

The increasing numbers of oil and gas discoveries in Uganda have proved significant hydrocarbon reserves in the country. With the latest well drilled in the country, total discovered resources in Uganda have reached approximately a billion barrels. Production in the country is expected to reach in excess of 200,000bpd by 2014/15.

More details on the full GlobalData report.

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