PERTH (miningweekly.com) – Oil and gas explorers were progressively prioritising value over volume, which has led to a change in exploration focus, Wood Mackenzie VP for exploration, Andrew Latham, told delegates at the Australian Petroleum Production and Exploration Association (Appea) conference, in Perth.

Latham said that investors assessing Australian opportunities in their global portfolios were concerned about high discovery costs and the anticipation of declining returns.

While frontier exploration might now attract less interest, Australia's established unconventional gas industry was likely to rank highly, when benchmarked against other unconventional plays outside North America.

“We are seeing a trend of companies adjusting course, after several years focused on high impact frontier exploration. The market wants more cash returned to shareholders at a time when rising costs and taxes have eaten into companies' free cash flow. This renewed emphasis on value is leading many independents and majors to fine-tune their portfolios, creating a buyers' market for exploration assets,” Latham said on Monday.

He noted that in the new exploration environment, interest has waned in themes with high discovery costs and developments with long-term, uncertain returns. There was also greater interest in short-term opportunities, oil-rich plays and conventional exploration in emerging and mature basins, which provide an earlier return on risk capital.

Australian exploration was currently dominated by long-term gas plays and unproven frontiers - two themes of declining interest for many companies, Latham said.

Those companies that continued to invest would be hoping to improve on the modest discovery sizes in recent years - typically less than one-trillion cubic feet, and the five- to ten-year lead time to commercialisation. These factors have suppressed full cycle returns from Australian exploration to less than 10%, much less than recent global industry averages of 12% to 15%.

“There is some positive news for Australia with regards to both conventional exploration and unconventional resources. Appraisal of promising offshore gas discoveries could push some projects towards development and fits with the new emphasis on accelerating returns. Progress with onshore unconventionals in the Cooper basin is another area to watch,” Latham explained.

“Queensland's coal seam gas is the largest unconventional resource business outside North America. Australia's shale plays are still far from achieving such scale, but we forecast that 2014 will be the most active year for international shale drilling yet. Australia, having had some success in the Cooper basin, will rank third of 18 countries this year, behind only Argentina and China, with plans to drill 25 shale exploration wells.”

He noted that 2014 would mark a change in exploration tactics, with the industry moving towards more valuable plays with higher returns.

“Divestments of noncore assets will create a buyers' market and provide widespread opportunities. Although Australian basins are weighted towards themes of higher risk or longer timeframes, there are plenty of plays with quality exploration potential that remain appealing under the country's attractive and stable business environment,” Latham said.