OSLO: Norwegian oil and gas company Aker BP is switching emphasis from M&A toward exploration, taking a potentially riskier path to increase its resources after years when it has relied on acquisitions to add the bulk of its new barrels.
The company said the change of tack was prompted by falling exploration costs, partly as a result of new technologies, as well as the rising cost of acquisitions in the energy sector because of stronger oil prices.
“Back in 2015-2016, we acquired resources for 50-60-70 cents a barrel, which is really hard to drill out on the Norwegian continental shelf,” CEO Karl Johnny Hersvik told Reuters in an interview.
“Now, when the drilling and the (seismic) data acquisition cost have come down, and the acquisition costs of the equivalent contingent resources have gone up, it makes sense (to explore).”
Aker BP has added three times more barrels in oil and gas resources through acquisitions than it has found itself since the company was born about three years ago, Reuters calculations show.
The company said it could still make acquisitions if opportunities arose, but declined to make any projections on how many barrels it could buy.
Acquisitions – “inorganic growth” – contributed more than 500 million barrels of oil equivalent (boe) in resources in 2016-18, according to the calculations based on the company’s annual reserve reports and investor presentations.
Aker BP’s own exploration efforts during that period were far smaller: the firm added 148 million boe from discoveries – 83 million in 2016, 10 million in 2017 and 55 million last year.
It cost $1.1 a barrel after tax to find new resources last year.
The company, controlled by Norwegian billionaire Kjell Inge Roekke and 30 percent owned by BP, said in January it was hiking its exploration budget by 40 percent year-on-year to a record $500 million in 2019 and planned to drill 15 exploration wells. It aims to find around 100 million boe net in 2019-20.
Its sharpened focus on exploration is, to some extent, emblematic of a wider industry trend of companies beginning to step up drilling efforts – which were curbed after the 2014 market crash – as a result of technological advances and stronger oil prices.
It could however be a riskier path for Aker BP, whose rapid growth driven largely by M&A helped it weather the downturn better than many peers and has seen its share price more than triple since 2016.
The company, which is solely focused on the Norwegian continental shelf, has had a mixed exploration record. It found a quarter of all new resources on the shelf in 2016, but the following year was disappointing.
“We have drilled too many dry wells,” Aker BP’s exploration chief Evy Gloerstad-Clark told Reuters. “If we want to get to the top we need to get a better exploration processes in place.”