“Exploration and production activity is not as high as might be expected,” RISC partner Simon Whitaker said at the APPEA conference yesterday.

“High oil prices in recent years have not yet flowed through to any significant increase in exploration activity

“Exploration expenditure increased in 2005, but the number of exploration wells drilled and seismic acquired was down on long-term averages. The observed increased expenditure is due to higher costs.”

According to a report released at the conference by APPEA, Australian exploration spending is now about $1 billion a year.

“Over the last decade, the upstream petroleum industry has undergone significant rationalisation with a focus on cost-cutting and under-investment in exploration to improve profitability during the period of relatively low oil prices,” the report said.

Companies were investing heavily in improving production capacity but were failing to replenish heir reserves through ongoing exploration.

To bring reserves replacement back up to a level of 100% or more of production, the industry’s exploration investment would need to virtually double, APPEA said.

“This is a massive challenge at a time when exploration capabilities and people resources are near capacity,” the report said.

This situation was driving costs up.

“The investment needed to expand exploration capacity – particularly in additional skilled labour, drilling rigs and seismic vessels – will take a number of years to develop. Until then the demand and competition for these scarce resources will remain high.”

APPEA advocates an increase in exploration, but Australia has delivered relatively poor exploration results, particularly in oil finds, according to the report.

“Offshore Australian exploration suffers from low commercial success rates and relatively small field sizes, particularly for oil,” the report said.

Australian oil, condensate and LPG production were falling.

Production of petroleum liquids has been running at about 60% of demand for the past few years, down from 80% over the previous decade, and Australia’s oil import bill more than doubled in the past financial year to reach $A3.7 billion.

Last year, no explorer in Australia found any oil field of more than 10 million barrels.

At current production rates Australia's oil reserves would last 17 years and its natural gas reserves 117 years, the report said.

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