While the nation is riding high on the benefits of the energy construction boom of the past few years, with gas and petroleum annual production hitting record highs and continuing to grow, the dramatic fall in exploration investment will have a secondary, negative longer term economic impact as Australia’s oil and gas reserves base weakens and will be forced to increase liquids imports, EnergyQuest CEO Dr Graeme Bethune warns.

In EnergyQuest's review of Australia's past three months, released at Australia Domestic Gas Outlook conference in Sydney yesterday, Dr Bethune said the total number of exploration and development oil and gas wells drilled in Australia has nearly halved, falling from 1534 in 2014 to just 821 in 2015.

Exploration drilling plunged from 119 to 54 as lower prices started to bite budgets, and there is little sign of any recovery with companies such as Chevron Corporation warning that the age of mega projects is over, and companies big and small stopping or slowing drilling to conserve cash.

Exploration spending fell from $1.03 billion in the December 2014 quarter to $446 million in the final quarter of 2015, and considering oil prices have fallen even further, Australia, which just saw its lowest oil exploration spend in a decade, will probably set a new record next quarter.

Dr Bethune said the low oil prices had driven significant downwards revisions of reserves, leading to negative reserves replacement ratios over the year just gone.

The price slump did not hit sales, with Australian oil and gas company sales volumes up strongly in December 2015 by 6.8% quarter-on-quarter on average - but revenue realised per barrel of oil equivalent fell by an average 29%.

This saw total sales revenue, excluding diversified metals and hydrocarbon concern BHP Billiton plummet from $4.4 billion in late 2014 to $3.3 billion in late 2015 – a drop of $1.1 billion.

That means more than $1 billion has been sucked out of dividends, where companies pay them, and Australian energy exploration, production or related business activities.

The collapsed oil price had its worst impact off Australia’s coastline, with offshore exploration activity crashing last year to just three wells sunk last year – nine times lower than the 29 offshore targets drilled in 2014.

Dr Bethune believes last year’s drought in offshore drilling is just the beginning of a prolonged period of very low Australian offshore activity, “... despite the large take up of new acreage in offshore release programs between 2012 and 2014”

“A survey by EnergyQuest of work programs to win offshore acreage in this three-year period shows explorers have guaranteed to spend a total of $1.105 billion in the first three years - but this impressive headline figure includes only 12 wells,” Dr Bethune said.

“In addition, winning bidders loaded most of their proposed spending – $1.77 billion and 43 exploration wells – into the secondary, non-guaranteed component of their work programs.

“This effectively gives them, in a low oil price environment, the freedom to severely prune their activity for as long as prices remain low.”

Onshore, which is largely the domain of junior and mid-tier companies, the decline in exploration wells was less precipitous but still serious.

“The number of onshore exploration wells dropped from 90 to 51, with big declines in all states except WA, where exciting results in the Perth Basin are driving activity,” Dr Bethune said.

Those numbers are expected to worsen, with Copper Basin players such as Senex Energy and Beach Energy stopping or severely curtailing exploration drilling.

Dr Bethune also warned about the long-term impact of bans on drilling in Victoria and New South Wales, the proposed moratorium in the Northern Territory and the possible curtailment of drilling offshore South Australia.

“To make matters even more difficult, some politicians are intent on killing what little oil and gas exploration activity there is, with Senate inquiries now into unconventional gas as well as proposed oil and gas exploration in the Great Australian Bight,” he said.

“Australia is estimated to have only produced 76 million barrels of oil in 2015, the lowest since 1970 – yet exploration in the Bight provides the best chance of finding the new oil basin that Australia badly needs.”

In terms of the level of investor interest in Australian-listed oilers, the ASX 200 Energy Index halved between September 2015 and January 2016 to 7511 at the end of January 2016 – its lowest level in 11 years.

Worse, the number of oil and gas companies has declined to around 79, Dr Bethune said, and of those 14 are either exiting the industry, being forced into major asset sales and/or contemplating a switch to another sector.

EnergyQuest noted some good news in the price ravaged oil sector, with Australian LNG export revenue growing quickly, to benefit the whole economy.

Gross Australian LNG production in 2015 was 30.4 million tonnes – an increase of 23.5% year on year and up 48.3% at 9.1Mt in the final quarter.

Not surprisingly, as the new east coast LNG plants soak up available gas, EnergyQuest forecast in its March quarterly that it estimated a southern supply gap of around 80 petajoules in 2020, increasing to 170PJ just five years later in 2025.

It was better news in the west where WA domestic gas production increased by 4.4% in 2015 to a record 371.7PJ – after four years of flat demand.

Overall, Australia’s natural gas production increased by 12.6% in 2015 to a record 2,634.6PJ and by 26.7% in the December quarter to 729.4PJ – due mainly to increased Surat-Bowen basin production.

Australian petroleum production in 2015 was a record 581MMboe, 6.6% higher than 2014.

EnergyQuest is also tipping a development drilling recovery in Queensland as the three big LNG plants need to maintain production from their CSG fields.

“Drilling there fell from 1173 wells in 2014 to 612 wells in 2015. This was a natural consequence of the initial need to drill, discover and develop maiden gas flows for the commissioning cycles for the new LNG plants - but substantial numbers of additional development wells are still needed now as the plants move to long-term output,” Dr Bethune said.

“Production of close to 1500PJpa from the Bowen and Surat basins is needed to underpin the Gladstone based LNG projects as well as to meet other demand.

“Some of the best fields are able to deliver 2PJ or more per well. If this could be achieved on average across the basins, it would still imply a need for 750 wells pa.

“This figure seems to be what the LNG companies are assuming, with plans to drill 800 wells a year in total.

“However, many areas are poorer than this and recoveries will fall over time. Average recoveries of 1PJ/well would therefore need around 1500 wells pa.”