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Copenhagen - After recent dry wells and a $1.7bn impairment, Maersk Oil is slowing down exploration globally and virtually ceasing it in Brazil and the US Gulf of Mexico until it works out what went wrong, chief executive Jakob Thomasen said on Thursday.
The AP Moller-Maersk unit has reserves corresponding to 4.6 years of production, below an average of 5 to 10 years for Maersk Oil's peers, which include Hess, Nexen and Marathon Oil.
The reserves-to-production ratio shows how long a company can produce the oil it has before it runs out. With spending on exploration slowing, Maersk Oil may need to buy into reserves for the future by acquiring fields from other companies.
"The fact that we explore less will mean that we have to discover or add oil and gas to replace our production in a different way," Thomasen told Reuters in an interview.
"We will be picking up the exploration programmes when we feel we have fixed the problem, but it (increasing reserves)could also be through acquisitions," he said, without elaborating on the problems with exploration Maersk Oil had had.
In the past year, the company has booked a $1.7bn impairment charge on Brazilian assets bought in 2010 for $2.4bn, relinquished a gas field off Denmark and has come up dry with two wells in Iraqi Kurdistan.
"So we have been disappointed and that is why we have cooled exploration down until we are sure, or much more certain, that we can deliver what we want," Thomasen said.
"What we have done for example in Brazil and also in the US Gulf of Mexico is to stop, or almost stop, our exploration efforts at least until we are certain on what to go forward with."
Spending falls
Exploration costs fell to $172m in the second quarter of 2014 from $380m in the same three-month period of 2013. For all 2014 spending is expected to be under $1bn compared to $1.1bn in 2013.
Maersk Oil's entitlement production dropped by a third between 2011 and last year to 235 000 barrels per day, a fall that had been flagged by the group to investors since 2012, when it also set out plans to reach 400 000 bpd by 2020.
Several large projects to develop new-found oil, such as Chissonga in Angola and Johan Svedrup in the Norwegian North Sea, would be the stepping stones towards that production goal.
That target, however, remains subject to a double-digit return requirement. Thomasen said the company was "looking firmly at the profitability of the projects and that's more important than the 400 000 barrels per day".
Three Iraqi Kurdistan projects in which Maersk Oil is a partner, operated by HKN Energy and Repsol, have been suspended due to the turmoil racking the country but the company's plans for the area remain unchanged, Thomasen said.
The AP Moller-Maersk group reported better-than-expected quarterly results on Tuesday, in which it raised the outlook for Maersk Oil of an underlying profit in line with last year's $1bn from a previous guidance of below the 2013 result.
