Everything about oil is big: the money; the political stakes. Back in the day, even the hair on "Dallas" wasn't small.
But in one crucial respect, small has become more fashionable.
This year, spending on developing oil and gas fields is forecast to be $462 billion worldwide, its lowest since 2009, according to Rystad Energy, an energy consultancy. Given that $50 a barrel is seen as cause for celebration in 2016, this isn't terribly surprising.
More interesting is how that spending breaks down by the size of the field it gets spent on.
Between 2000 and 2014, spending on fields with more than 1 billion barrels of oil equivalent in reserves rose by 12.5 percent a year. But spending on fields in the next two tiers down increased by between 15 and 16 percent a year. Fields with reserves of just 30 million to 300 million barrels-equivalent took the lead on investment in 2013. What's more, Rystad expects them to bounce back more quickly, with spending rising by 12.5 percent a year between now and 2020, almost double the pace of investment for mega-fields.
The trend is even more pronounced when you consider oil fields in isolation. Spending on gas has been skewed toward larger prospects in recent years because of the frenzied investment in liquefied natural gas projects (these only make sense when the reserves are huge, and they also cost billions to build).
As remarkable as the surge in spending on more modest fields is the fact that annual investment in 1 billion-barrel-plus fields essentially started to plateau as far back as 2008. If you look at the overall share of spending, the extent to which big plays have been edged out becomes clearer.
There are some straightforward reasons for this trend. The most obvious is that it has become harder to find giant conventional oil fields, not just because of geology but also because of restricted access to promising regions such as Russia and swathes of the Middle East. There are still large discoveries to be had -- Hess and Exxon Mobil just raised their estimate of one off the coast of Guyana -- but they aren't as frequent as they used to be.
Instead, more money has migrated to shale fields. These are smaller individually, but collectively are tapping into a vast pool of potential resources trapped in tightly packed rock far beneath where conventional fields usually lie. They also happen, thus far, to be most readily available for development in the relatively benign political environment of the U.S.
What links these trends? Finance.
For investors, Big Oil has become less than beautiful, largely because it spent much of the past decade pouring billions of dollars into mega-projects that have generated poor returns. This was true even before oil prices crashed, but the added pressure has led to concerns about the oil majors being able to fund their dividends. Witness the cutbacks in their capital expenditure budgets and several mergers by oil-field services players such as Schlumberger and FMC Technologies as they try to reduce the costs of finding and developing bigger discoveries.
Shale's shorter time horizons, with oil being generated months rather than years after the first dollar of investment goes in, have made it more attractive. Smaller oil companies selling investors a growth story rather than dividends have been the pioneers here, and they have been helped not merely by the prior boom in energy prices, but also by cheap finance. It is no accident that the surge in spending on smaller fields really took off in 2010 as junk-bond yields collapsed.
Tighter finance and low oil prices have choked off spending for now. Still, despite many bankruptcies, U.S. exploration and production companies have proven adept at raising more money and swapping debt for equity, as well as cutting costs, in even these straitened times. And as oil prices rise in response to the pullback at the top of the industry, the minnows will have more resources to fund their insurgency.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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