* New oilfield development drop to lowest since 1999
* Global reserve replacement ratio falls steeply
* Enhanced oil recovery from mature field is partialsolution
By Ron Bousso
LONDON, July 10 (Reuters) - Two years ago Total's chief Christophe de Margerie launched a "high risk, high reward"oil exploration strategy, betting he could hit a bonanza, eventhough his rivals had failed to make big discoveries.
But Total risks joining the industry trend of making onlysmaller and fewer finds, despite global investments in oilexploration heading to a record $1 trillion by 2017.
This week, Margerie told Reuters he gives himself until theyear-end to find a major deposit or cut the exploration budgetnext year following several disappointing drilling campaigns.
Top players are struggling to find enough conventional oil.Majors are caught between growing pressure from investors to cutspending and boost profits and the increasingly costly need toreplace declining onshore and offshore reserves.
"Over the last 10 years the rate of return from explorationhas diminished with time," said Andrew Lodge, explorationdirector at London-listed explorer Premier Oil.
"In the heyday of 2001-2002 the average rate of return forthe industry was 20 percent ... that dropped last year to around10 percent," he said.
Disappointing exploration campaigns no longer make such bigheadlines as they were 10 years ago amid the "peak oil" debate.
That theory of oil as a diminishing resource has beentransformed by the U.S. shale oil revolution. Speedy growth fromNorth American unconventional oil reserves has helped stabiliseoil prices, despite major supply outages.
As a long-standing U.S. ban on crude oil exports remains inplace, however, the industry still hugely relies on conventionalmega-projects, such as those off the coast of Angola or Brazil,which progress along generally predictable time frames andproduce stable volumes for years.
The shale oil industry is more complicated and is still inits infancy, which makes it incredibly difficult to anticipatenew oil coming onto the market.
TRILLION DOLLARS
New conventional discoveries in recent years havedisappointed in size and only a handful, such as Statoil's Johan Sverdrop oilfield in the North Sea, have emulatedthe mega fields discovered more than 50 years.
"Today we consume 33 billion barrels of oil per year and arediscovering 10-20 billion barrels at most. It appears that thebiggest single oil discovery in 2013 was less than 1 billionbarrels in size," asset management firm Investec said in areport.
Despite a tight capital diet, oil companies are set to spenda record $1 trillion to explore for new reserves by 2017,according to Barclays.
Exploration and production spending has risen four-foldsince 2000 to around $700 billion because of a rise in materialand services prices, which in turn were driven to a large extentby a steep increase in global oil prices and inflation rates.
In 2014, ExxonMobil will spend the most on E&P amongthe oil majors at $35.3 billion dollars, followed by Chevron at $34.6 billion. PetroChina has the largest E&P budgetfor 2014 at $39.6 billion, according to Barclays data.
"Majors have increased exploration budget by 3 to 5 times inrecent years but they have been very ineffective," saidInvestec's Charles Whall. "The oil companies are a littlecomplacent".
Oil discoveries peaked in the 1960s when around 400,000billion barrels were discovered.
In a measure of the success of drilling project, the numberof new oilfield developments is set to drop below 50 per year in2014 and 2015, compared with an average of 75 per year over thepast decade, according to Nicholas Green, analyst atLondon-based Bernstein Research.
"This represents the lowest level of activity since 1999,lower even than the oil price crash of 2008-09," he said.
The declining rate of finds is now discouraging investmentin certain areas, with drilling in the North Sea set to declinethe most over the next two years. Southeast Asia is likely to bethe only region to see increased activity, according to Green.
The complexity of "frontier exploration" such as the Arcticand the pre-salt deep waters of Brazil and West Africa has cutreturns on investments.
Some hope the answer to poor exploration results can befound in increased recovery rates from mature conventionalfields.
Oil recovery averaged around 35 percent for decades buttechnological advances such as computer geological modelling andthe use of new chemicals have increased the recovery to over 50percent, according to Matthias Bichsel, Shell director ofprojects and technology.
"I believe in further breakthroughs in enhanced oilrecovery. That's what we will see - injecting chemicals tosimply get more oil out of the ground," Bichsel told Reuters.
"The best way is to make the most out of what you have." (Editing by William Hardy)
BP (BP.)
