* Exploration spend to halve from 2014 peak - Wood Mac
* Total cuts 2016 spend by 21 pct, less than others
* Others choose to add reserves via takeovers
* Shell, BP failed to replace reserves in 2015
By Karolin Schaps
LONDON, March 7 (Reuters) - As oil firms slash billions ofdollars of investment to survive the market crash, France'sTotal and Italy's Eni are making some of thesmallest cuts, gambling in the hope of big-ticket discoveriesthat will reward them when prices recover.
Both approaches carry risks. Intensive explorationprogrammes mean higher costs and lower profits in the shortterm, with no guarantee of finding new fields. But firms thatscale back too far may damage future growth prospects, forcingthem to splash out on acquisitions.
Wood Mackenzie analysts expect this year's explorationspending to fall to just half of a peak of $95 billion reachedin 2014. Against that background, Total's 21 percent cut isamong the smallest.
The French company, which pursued a "high risk-high reward"strategy under late chief executive Christophe de Margerie, willstill spend $1.5 billion on exploration this year, including offMyanmar, Argentina and Nigeria.
"Our new exploration manager will be able to explore most ofthe prospects he wanted to," Total Chief Financial Officer,Patrick de la Chevardiere, told journalists last month.
"We're giving him a certain budget which leaves himsufficient flexibility to explore what he wants to explore."
Eni has not published separate exploration budget numbersfor 2016 but said it will keep seeking new resources in matureareas where it can use existing infrastructure and know-how tolower costs.
The Italian group became the first big oil firm last year tocut its dividend in order to navigate the market downturn.
Its bet on finding new resources was boosted last year whenit made the bumper Zohr gas discovery offshore Egypt, thebiggest ever in the Mediterranean and its fifth large oil andgas find in just three years, giving it the best track record inreserve replacement among majors.
RESOURCE HUNT
With oil prices down around 70 percent since mid-2014, thetemptation to cuts exploration costs is strong. But the natureof the energy business means companies must constantly add newresources as producing assets gradually run out of oil and gas.
"In a downturn, exploration is about securing access toopportunities and high quality acreage at very low cost," saidStephane Foucaud, managing director of institutional research atadvisory firm First Energy.
Those with tighter pockets will have to rely on adding newresources through acquisitions further down the line, a moreexpensive option.
"Many (oil majors) consider that buying smaller companieswould now be an investment with a higher return than if themajors were doing the frontier exploration themselves," saidEric Oudenot, a partner specialising in oil and gas at TheBoston Consulting Group.
Europe's biggest oil major, Shell, has led the waythrough its $53 billion acquisition of BG Group, a gas producerwith exposure to attractive deepwater licences offshore Brazilthat will help increase Shell's proven reserves by 25 percent.
Its own investment cuts have already made an impact on thebusiness. Its reserve replacement ratio (RRR), a metric used toreflect new reserves added relative to the amount produced, wasnegative in 2015 for the first time in around 12 years. Bycomparison, Eni's RRR was 148 percent in 2015, not including theimpact of the Zohr discovery.
"While we're not entirely comfortable with a negativenumber, it's not the most important thing today," Shell ChiefFinancial Officer Simon Henry told reporters last month.
British oil major BP saw its RRR fall to 61 percentlast year, from 63 percent in 2014 and 129 percent in 2013. Itsaid the weaker ratio was a direct result of the low number offinal investment decisions and reduced activity in the UnitedStates.
BP is one of the companies which has severely slashed itsexploration spend. Its budget has shrunk to around $1 billionfrom $2.4 billion spent in 2015, a fall of nearly 60 percent.
The oil major was badly burnt last year by around $3 billionin upstream write-offs, many due to unsuccessful explorationcampaigns.
"(Exploration is) the one thing I think that we can phase,and we'll just be very cautious and careful around that," saidBP Chief Executive Bob Dudley on the company's full-yearearnings call in early February.
Norwegian oil major Statoil, which has slashedexploration spending by around 31 percent to $2 billion thisyear, said it was already on the lookout for acquisitions tobuild its exploration portfolio.
"We are quite active now in building a new globalexploration portfolio and there is no doubt now is a good timeto do it," Chief Executive Eldar Saetre told Reuters last month.
Wood Mackenzie analysts say low exploration levels will feedthrough to lower production in 10 to 15 years' time.
"Exploration is the easiest cost to reduce for a managementteam," said BCG's Oudenot. "It only bites you back a few yearslater." (Additional reporting by Stephen Jewkes in Milan and JoachimDagenborg in Aalesund; Editing by Mark Trevelyan)
