PROSPECTIVITY: IS IT THE REAL CULPRIT FOR THE DECLINE IN ONSHORE EXPLORATION?

Abstract

In 1987 a total of 163 exploration wells were drilled in Australia's onshore basins. In 1993 the number was 47 and although the forecast for 1994 is slightly higher, activity levels over the next few years are expected to stay low. During the 1987—93 period over 60 per cent of all exploration wells were drilled in the Cooper/Eromanga and Bowen/Surat basins. Not a single exploration well was drilled in a number of basins during the period. There is a general perception amongst industry and investors that the majority of Australian's onshore basins are not prospective. A review of past exploration pro­grams in the frontier and emerging basins suggests that this perception is valid. As a result, the smaller companies, which are responsible for the majority of wells drilled in such basins, have found it diffi­cult to attract risk capital and, consequently, activ­ity levels have fallen to the current levels. Not withstanding the results of past exploration efforts, detailed financial analysis of the best oil plays in the Canning, Perth and Surat basins suggests that the potential returns from exploration and develop­ment activities are extremely attractive. Forecast internal rates of return exceed 50 per cent. Each play was subjected to sensitivity analysis to deter­mine the break-even point for exploration and de­velopment success rates, field sizes, well volumes, initial production rates, exploration and develop­ment capital costs, fixed and variable operating costs and corporate tax rates. The results suggest that the economics are considerably more robust than generally believed. The task confronting in­dustry is to convince the stock market that attrac­tive returns can be generated from at least three onshore basins so capital can be raised to exploit available opportunities.