* Aker BP controlled by Norwegian billionaire Kjell IngeRoekke
* Has relied on acquisitions to add most of its new barrels
* Now stepping up exploration drive as drilling costs fall
* Emblematic of new industry-wide approach to exploration
By Nerijus Adomaitis
OSLO, March 1 (Reuters) - Norwegian oil and gas company AkerBP is switching emphasis from M&A towardsexploration, taking a potentially riskier path to increase itsresources after years when it has relied on acquisitions to addthe bulk of its new barrels.
The company said the change of tack was prompted by fallingexploration costs, partly as a result of new technologies, aswell as the rising cost of acquisitions in the energy sectorbecause of stronger oil prices.
"Back in 2015-2016, we acquired resources for 50-60-70 centsa barrel, which is really hard to drill out on the Norwegiancontinental shelf," CEO Karl Johnny Hersvik told Reuters in aninterview.
"Now, when the drilling and the (seismic) data acquisitioncost have come down, and the acquisition costs of the equivalentcontingent resources have gone up, it makes sense (to explore)."
Aker BP has added three times more barrels in oil and gasresources through acquisitions than it has found itself sincethe company was born about three years ago, Reuters calculationsshow.
The company said it could still make acquisitions ifopportunities arose, but declined to make any projections on howmany barrels it could buy.
Acquisitions - "inorganic growth" - contributed more than500 million barrels of oil equivalent (boe) in resources in2016-18, according to the calculations based on the company'sannual reserve reports and investor presentations.
Aker BP's own exploration efforts during that period werefar smaller: the firm added 148 million boe from discoveries -83 million in 2016, 10 million in 2017 and 55 million last year.
It cost $1.1 a barrel after tax to find new resources lastyear.
The company, controlled by Norwegian billionaire Kjell IngeRoekke and 30 percent owned by BP, said in January it washiking its exploration budget by 40 percent year-on-year to arecord $500 million in 2019 and planned to drill 15 explorationwells. It aims to find around 100 million boe net in 2019-20.
Its sharpened focus on exploration is, to some extent,emblematic of a wider industry trend of companies beginning tostep up drilling efforts - which were curbed after the 2014market crash - as a result of technological advances andstronger oil prices.
It could however be a riskier path for Aker BP, whose rapidgrowth driven largely by M&A helped it weather the downturnbetter than many peers and has seen its share price more thantriple since 2016.
The company, which is solely focused on the Norwegiancontinental shelf, has had a mixed exploration record. It founda quarter of all new resources on the shelf in 2016, but thefollowing year was disappointing.
"We have drilled too many dry wells," Aker BP's explorationchief Evy Gloerstad-Clark told Reuters. "If we want to get tothe top we need to get a better exploration processes in place."
But Aker BP and other firms, including Sweden's LundinPetroleum Norway's largest firm Equinor, arefacing a similar challenge: discoveries on the Norwegiancontinental shelf are getting smaller and smaller.
INDUSTRY CHANGE
Aker BP's strategy during the downturn contrasted with thatof its closest rival on the continental shelf, fellow mid-tierplayer Lundin, which stuck to a plan of organic growth viaexploration.
Lundin added only 21.5 million boe from discoveries in2016-2018, its investor presentations showed. Lundin's shareprice growth has lagged Aker BP's - but the stock has stilldoubled since 2016, bolstered by reserve revisions at the giantJohan Sverdrup field which the firm found in 2010 and is due tostart producing this year.
Aker BP's exploration push reflects a sector-wide change ininvestor sentiment, according to Teodor Sveen-Nilsen atSparebank 1 Markets.
"With the upturn in the cycle, investors are more focusingon exploration and reserve replacement than a few years ago,when all the focus was on return on capital and dividends."
French oil company Total is launching its biggestexploration drive for years in 2019, for example, while Chineseoil majors are also stepping up drilling.
NEW PROSPECTS
Aker BP's CEO Hersvik said a lesson from past explorationfailures was not to put all bets on one or two areas, and to dobetter homework to pinpoint the best spots to drill.
The company said it would spend about 40 percent of itsexploration budget targeting new prospects, while 60 percentwill go to drill near its existing hubs.
Gloerstad-Clark also said Aker BP was working to bettervisualise its drilling and seismic data using specialisedsoftware, but this was taking time.
The Norwegian continental shelf is proving an increasinglychallenging environment for explorers. In 2011-2017, discoveriesaveraged under 10 million boe, compared with about 110 millionboe in the early years of Norway's oil industry in 1966-1980.
Aker BP started out in 2016, when Norwegian oil firm Detnorske bought British major BP's Norway business in anall-share deal, with BP taking a 30-percent stake, two yearsafter Det norske acquired the Norwegian assets of Marathon Oil.
As a result of these and subsequent deals, including theacquisition of Hess' Norwegian assets in 2017, Aker BP'scontingent resources - proven resources that could be tapped -tripled to 946 million boe between 2016 and 2018. The companyhas also amassed a large acreage to explore, with stakes in 156production licences.
Jefferies analyst Mark Wilson said Aker BP's shift towardsexploration was a logical step in the company's development,helped by Norway's favourable tax regime.
"It's a natural evolution that makes sense, but the proofwill be in the pudding," he added.(Reporting by Nerijus Adomaitis; Editing by Pravin Char)
BP (BP.)