Released August 26, 2025 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Oil and gas companies need to put more money into exploring for new reserves, and less cash in investors' pockets. That's the upshot of a roundtable discussion August 18 at the 30th annual EnerCom Denver energy investment conference. Of course, since investors, some of whom hold stakes in oil and gas companies, were part of the audience, the executives didn't say the quiet part out loud -- that oil and gas companies should stop sending such a high percentage of their free cash flow to investors and redirect in to exploration activities. But it was easy enough to connect the dots.
Oil and gas companies spent mountains of money willy-nilly in the first decade of the 21st century, during the early years of the shale revolution. It turned out that too many of those dollars went to over-priced or questionable projects. Several years ago, Wall Street said, "enough," and started to more aggressively clamor for a larger slice of oil and gas companies' free cash flow in the form of higher dividends and share repurchases. Now, on quarterly earnings calls, oil and gas company executives routinely highlight how much capital they are returning to those who own their companies.
As cash has increasingly been returned to the investors, oil and gas companies began practicing "high-grading" their acreage, drilling only the most promising prospects. Years of high-grading has shortened the reserve-to-production (R/P) ratio of U.S. oil producers to about five years, down from its historical level of about 10 years. High-grading acreage has led to a steady reduction in the number of drilled but uncompleted (DUC) wells in the U.S., from a peak of around 8,800 in mid-2020 to the current level of about 5,293 at midyear 2025, according to the August "Short-Term Energy Outlook" produced by the U.S. Energy Information Administration (EIA).
A shortened R/P ratio and reduction of the DUC inventory means the industry is moving future production into the current tim eframe without replacing those future barrels.
John Christmann, chief executive of APA Corporation (Houston, Texas), told the EnerCom attendees, "Exploration is a long-lost art that the industry will have to get back to. The industry must increase recovery rates and add new fields. Exploration & production depends on exploration no less than production."
Echoing several other EnerCom speakers, Christmann said the world will need more oil over the coming decades. But he added that new discoveries and existing field production are not keeping up with projected growth in demand to 2050.
Click on the image at right to see a graphic on historical, current and projected global oil supply and demand to 2050.
Citing data from Rystad Energy, Christmann said the industry's worldwide spending on conventional exploration activities will fall to a little more than $50 billion this year, down about half from its recent peak of approximately $115 billion in 2013.
Click on the image at right to see a chart of the oil & gas industry's worldwide capital spending on conventional exploration activities since 2010.
He estimated that APA will spend about $65 million on exploration activities this year out of a total upstream capital program of $2.3 billion. Over the 2020-2025 period, he said the company will spend an estimated $850 million on exploration activities. His co-panelist, Bill Armstrong, a legendary wildcatter and founder and chief executive of privately held Armstrong Oil & Gas (Denver, Colorado), agreed.
"The 'E' in E&P disappeared with the advent of shale drilling for most E&P companies," Armstrong told conference attendees.
He called Exxon Mobil Corporation's (Spring, Texas) discovery in Guyana "the hottest exploration play" in the industry, but it took the company about 20 years to explore and develop it.
"Successful exploration ventures can move the needle. But they take time. What are you doing to ensure your company's future success?" said Armstrong, who added that a fear of failure often limited risk-taking.
Armstrong estimated that he has discovered about 5 billion barrels of oil in his career. His company is developing a large discovery in Alaska, a region he said most of the industry considered "dead as disco." His company made a big Alaska discovery, Pikka, in 2013. He projected production will begin next year at an initial level of about 80,000 barrels per day (BBL/d). In a few years, production is expected to reach about 250,000 BBL/d.
His company also has great hopes for another Alaska project, Sockeye-2. He told the attendees that the two discoveries have a combined resource base of about 3.5 billion barrels of oil equivalent (BOE).
Responding to a question from the audience, Armstrong said, "Shale plays deterred U.S. companies from drilling on an exploration basis, but the world is starting to realize the runway is getting shorter. We need to find new oil."
He said data analytics can boost wildcat drilling success rates to 30%, triple the traditional 10% success rate for wildcat drilling projects.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
Oil and gas companies spent mountains of money willy-nilly in the first decade of the 21st century, during the early years of the shale revolution. It turned out that too many of those dollars went to over-priced or questionable projects. Several years ago, Wall Street said, "enough," and started to more aggressively clamor for a larger slice of oil and gas companies' free cash flow in the form of higher dividends and share repurchases. Now, on quarterly earnings calls, oil and gas company executives routinely highlight how much capital they are returning to those who own their companies.
As cash has increasingly been returned to the investors, oil and gas companies began practicing "high-grading" their acreage, drilling only the most promising prospects. Years of high-grading has shortened the reserve-to-production (R/P) ratio of U.S. oil producers to about five years, down from its historical level of about 10 years. High-grading acreage has led to a steady reduction in the number of drilled but uncompleted (DUC) wells in the U.S., from a peak of around 8,800 in mid-2020 to the current level of about 5,293 at midyear 2025, according to the August "Short-Term Energy Outlook" produced by the U.S. Energy Information Administration (EIA).
A shortened R/P ratio and reduction of the DUC inventory means the industry is moving future production into the current tim eframe without replacing those future barrels.
John Christmann, chief executive of APA Corporation (Houston, Texas), told the EnerCom attendees, "Exploration is a long-lost art that the industry will have to get back to. The industry must increase recovery rates and add new fields. Exploration & production depends on exploration no less than production."
Echoing several other EnerCom speakers, Christmann said the world will need more oil over the coming decades. But he added that new discoveries and existing field production are not keeping up with projected growth in demand to 2050.
Click on the image at right to see a graphic on historical, current and projected global oil supply and demand to 2050.Citing data from Rystad Energy, Christmann said the industry's worldwide spending on conventional exploration activities will fall to a little more than $50 billion this year, down about half from its recent peak of approximately $115 billion in 2013.
Click on the image at right to see a chart of the oil & gas industry's worldwide capital spending on conventional exploration activities since 2010. He estimated that APA will spend about $65 million on exploration activities this year out of a total upstream capital program of $2.3 billion. Over the 2020-2025 period, he said the company will spend an estimated $850 million on exploration activities. His co-panelist, Bill Armstrong, a legendary wildcatter and founder and chief executive of privately held Armstrong Oil & Gas (Denver, Colorado), agreed.
"The 'E' in E&P disappeared with the advent of shale drilling for most E&P companies," Armstrong told conference attendees.
He called Exxon Mobil Corporation's (Spring, Texas) discovery in Guyana "the hottest exploration play" in the industry, but it took the company about 20 years to explore and develop it.
"Successful exploration ventures can move the needle. But they take time. What are you doing to ensure your company's future success?" said Armstrong, who added that a fear of failure often limited risk-taking.
Armstrong estimated that he has discovered about 5 billion barrels of oil in his career. His company is developing a large discovery in Alaska, a region he said most of the industry considered "dead as disco." His company made a big Alaska discovery, Pikka, in 2013. He projected production will begin next year at an initial level of about 80,000 barrels per day (BBL/d). In a few years, production is expected to reach about 250,000 BBL/d.
His company also has great hopes for another Alaska project, Sockeye-2. He told the attendees that the two discoveries have a combined resource base of about 3.5 billion barrels of oil equivalent (BOE).
Responding to a question from the audience, Armstrong said, "Shale plays deterred U.S. companies from drilling on an exploration basis, but the world is starting to realize the runway is getting shorter. We need to find new oil."
He said data analytics can boost wildcat drilling success rates to 30%, triple the traditional 10% success rate for wildcat drilling projects.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
