Finally, there’s positive news about exploration. And just as important, a positive outlook that includes higher expenditure for the next five years.
Exploration spending is up after a long period of constrained outlays. The offshore sector appears to be headed toward a mini-boom. Even frontier exploration has started to make a comeback, with several big-chance wildcats planned or proposed around the world.
Industry’s exploration-related expenditures in 2023 are expected to reach the highest level in years, according to a report issued by research and intelligence firm Rystad Energy in August.
And according to a new study from energy consultancy Wood Mackenzie, also issued in August, “tailwinds from attractive exploration economics, the need for energy security and the emergence of new frontiers” will incentivize companies to increase exploration spending through 2027.
A Reserved Resurgence
To be sure, at this point no one is projecting exploration to return to the levels seen 10 years ago. That reflects the industry’s stricter financial discipline, noted Julie Wilson, Wood Mackenzie director of global exploration.
“They’re not going to go back to 2013, 2014 levels of spending. There’s no going back to those times when there was a real lack of discipline in what was drilled,” she said.
Led by national oil companies and oil majors, exploration efforts today target both reserve additions and bigger and faster returns.
“Decreasing lead times and quick recovery of discovered volumes is the prime focus. Usually, a discovery today can come to production in three to five years now, (rather) than what initially used to be around eight to 10 years in 2015,” said Aatisha Mahajan, Rystad vice president of upstream research.
Also, “companies are aligning their strategy with regional or country strategy for more productive exploration and production returns,” she noted.
Combined with what she called “continuous zeal for frontier exploration and ultra-deepwater plays like Namibia,” those trends are propelling international exploration toward a brighter future.
In its Top Projects analysis of the energy sector, investment and analysis company Goldman Saks reported the industry now has 70 major projects under development worldwide, a 25-percent increase from 2020.
“Last year was the turning point – after seven years straight of underinvestment, it was the first up year. I think this year provides the confidence and the confirmation that this trend is definitely in place,” said Michele Della Vigna, head of Goldman Sachs natural resources research.
“We have projected out for the next five years close to 10 percent per annum growth in capital expenditures,” he added.
Wilson said the biggest driver right now for increased exploration spending is “energy security. That’s the key one, I would say. And the financial health of the upstream sector has recovered since the pandemic. Companies are in a stronger position financially.”
“When we get results like we had last year, which was phenomenal in terms of value creation,” it lifts the confidence of both executives and explorationists. “This year is shaping up to be a good year,” she noted.
NOCs and majors account for most of the global activity. Together, ExxonMobil, BP, Shell, TotalEnergies, Eni and Chevron are expected to spend around $7 billion this year on exploration, about 10-percent higher than in 2022, according to Rystad.
“The exploration industry has consolidated massively. The midcaps have almost completely disappeared from the scene,” Wilson observed.
Where is the Exploration Happening?
Globally, she said, drilling continues offshore Guyana and Suriname. There’s new interest in Argentina and Uruguay. Brazil has “quieted down for IOCs (international oil companies) for now, though Petrobras continues to explore.”
“India offshore is one to keep an eye on. They have launched a bid round offering offshore areas that were previously off-limits. They’ve worked to make fiscal terms more attractive. The potential there is good, we think. It’s not world class,” Wilson said.
A consortium led by TotalEnergies is set to drill a deepwater test offshore Lebanon, and “if it’s a discovery, it will be the country’s first (commercial offshore) discovery. That is planned for later this year,” she said.
In addition to plans for deepwater exploration offshore Algeria, onshore Algeria “had a bit of a renaissance last year, both by Sonatrach and IOCs. Don’t discount onshore exploration,” she noted.
Wilson said Wood Mackenzie is keeping an eye on drilling in the eastern Mediterranean and in Namibia and elsewhere on the African margin.
“Shell is going to be targeting Cretaceous carbonates later this year,” and additional carbonate will be drilled offshore Mauritania, with Shell eyeing carbonates in both Namibia and Mauritania. Earlier this year the company won an extension to its Mauritania C-10 license, presumably to drill a wildcat in a carbonate play that extends into contiguous Block C-2.
A driver in north Africa and the eastern Mediterranean is the need to feed Europe’s gas needs, and ExxonMobil “has two blocks offshore Greece where they’re shooting seismic. So we might see a well there next year or the year after,” Wilson said.
Offshore Africa, “companies were trying to find the next Jubilee (field), but never found it,” she noted. Jubilee is a major oil accumulation offshore Ghana, where discovery well operator Tullow Oil recently announced production has surpassed 100,000 barrels a day.
Now, partly because of the success of Eni making its deepwater Baleine oil and gas discovery in Cote d’Ivoire in 2021, “we’re seeing interest returning to Cote d’Ivoire and Liberia,” countries immediately to the west of Ghana.
Wilson said another exploration area of current interest is Southeast Asia, including Sarawak, where “there’s a lot of infrastructure in place, so as you step out farther, that infrastructure in place reduces the cost in tying back. There is also a ready gas market on the doorstep, with attractive pricing.”
Challenges and Future Projections
Exploration still faces headwinds, plus the lingering prospect of a global economic slowdown that would drive energy prices lower. According to Mahajan, the biggest challenges are:
- Decreasing discovered volumes on a year-to-year comparison, a consequence of the decrease in frontier, high-risk, high-reward exploration areas
- Exploration in mature regions contributing smaller new volumes
- Diversification of companies’ traditional oil and gas portfolios
- Inclusion of low-carbon investments into E&P company strategy, siphoning funds from exploration budgets
In researching the biggest future challenges for exploration, Wood Mackenzie found that industry executives have begun to worry about the size of their prospect portfolios, Wilson said.
“Every year we perform a survey among exploration leaders and we asked this very question. The number one answer was, ‘limited prospect inventory.’ And the number four answer was, ‘limited opportunities to replenish that inventory,’” she said.
A lack of sufficient budget was the second most common concern, with talent shortages number three.
“The sector laid off a lot of people, especially during COVID and previously during the 2014-15 downturn. Coupled with a lack of new talent coming from colleges, those cuts are now creating shortages in key areas,” she said.
A lower exploration success rate this year has started to cause concerns, especially the smaller number of significant oil and gas accumulations.
According to the Rystad Energy report, explorers found 2.6 billion barrels of oil equivalent in the first half of this year, 42-percent lower than the first half of 2022. The industry claimed 55 discoveries in the period compared to 80 in the first six months of last year.
“This means discoveries in 2023 have averaged 47 million boe, lower than the 56 million boe per discovery for the same period in 2022,” Rystad noted.
But while some analysts see a lack of impressive discoveries, “we see a different story,” with a number of big wells remaining to be drilled over the next six-to-eight months or so, Wilson said.
“Exploration activity will likely gain momentum in the second half of 2023, with crucial exploration wells planned to be drilled,” Rystad Energy reported, “especially in the ultra-deepwater market, with projected growth of 27 percent versus 2022 in terms of spud wells.”