By August 2015, Eni seemed out of luck in the eastern Mediterranean. Two wells drilled off the shore of Cyprus had been failures. Several other companies looked at data on its deepwater block north of Egypt, where Shell had sunk 10 wells in previous years without any real success, but decided against taking a share. There was a promising deeper structure with untested geology, but the Italian company would have to go it alone.
Eni drilled in almost a kilometre-and-a-half of water, then through more than 4,000 metres of sand, shales and salt. During the Miocene period 6 million years ago, the entire Mediterranean dried up, leaving a thick layer of salt – ideal for trapping any oil or gas that formed below it.
And Eni's boldness was rewarded – the giant Zohr discovery, with 32 trillion cubic feet of gas. For a well costing US$100 million, Eni then sold 10 per cent of the find to BP for $375m and 30 per cent to Rosneft for $1.12 billion, repaying its initial investment many times over even before a molecule of gas is produced.
Zohr hit the headlines, but it is not the only notable find lately in the Middle East and North Africa.
Iraq has had very little exploration since the 1970s, other than in the autonomous Kurdish region, but in March 2014 Kuwait Energy and its partner Dragon Oil, owned by the Dubai Government, found a potentially giant oilfield, Faihaa, near the Iranian border. Last month, Lukoil and Inpex announced a find at Eridu in the country’s south-west desert.
Also last month, Iran announced it had found 2 billion barrels of recoverable crude oil and about 30 trillion cubic feet of gas, without specifying the fields.
Further afield, in mid-2015, Kosmos Energy unearthed Ahmeyim, a giant gasfield, offshore Mauritania and Senegal.
Such finds stand out, since international oil companies' recent exploration record has been dismal. Worldwide discoveries are running at their lowest level since the 1950s, and mostly gas, rather than oil. The consultancy Wood Mackenzie estimates that global exploration spending fell to $40bn last year, from $100bn in 2014. But even before spending dropped, results were poor.
The Middle East and North Africa region does not explore enough, or in the right way. Yet as these finds show, it is still shaping up as one of the most successful areas. The remaining potential, particularly in underexplored regions such as Iran, Iraq and offshore Lebanon and North Africa, is vast.
Despite its huge reserves, the region still needs to find more. It needs more gas, where most countries are short of what they need to feed the domestic market and sustain exports. The smaller oil producers, such as Algeria, Oman, Bahrain, Qatar and Egypt, require new discoveries to keep production growing. Even the major reserves holders – Abu Dhabi, Iran, Iraq, Kuwait and Saudi Arabia – can benefit from replacements for maturing fields and new development options.
But in many countries, a dominant national oil company monopolises exploration. They are typically risk-averse, a weakness in a game where nine times out of a 10 a $100m well finds nothing. They lack exposure to a wide range of geological concepts and new exploration technologies. And unlike Eni, which explores in 43 countries, they are not able to balance their risk across many geographies.
Where international companies are allowed to explore, as in Iraq, terms are so stringent that only the largest, lowest-risk prospects have a chance of being economically viable.
The region’s national oil companies can think more creatively and proactively about exploration, perhaps creating special divisions with some freedom and an international mandate. Underexplored areas can be opened to international players, including imaginative specialists such as Kosmos, on reasonable terms. Get this right and Middle East countries can realise their geological potential, and, as oil prices pick up, play their part in an exploration renaissance.
Robin Mills is the chief executive of Qamar Energy and the author of The Myth of the Oil Crisis.
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