The economic outlook is at last looking brighter for explorers, said Dr Andrew Latham, Wood Mackenzie’s vice president, global exploration, during his keynote address at the European Association of Geoscientists and Engineers (EAGE) conference.
Well numbers and exploration spend fell to a 10-year low in 2017, but there have been major fluctuations in activity over the past decade, he pointed out, adding that since 2008, the industry has found close to 250 Bboe.
“Deepwater attracted almost half of global exploration investment over the past decade and has delivered a similar share of new volumes,” he continued.
“It also contributed the largest number of giant discoveries following the unlocking of the prolific Brazilian presalt oil and East African gas plays. The higher cost of these wells was offset by larger discovery sizes, helping to keep discovery costs low.”
While shelf plays attracted more than 50percent more exploration and appraisal wells than deepwater, the sector’s relative maturity showed in the smaller average size of discoveries, Dr Latham said.
The generally cautious approach to exploration will likely continue, with industry investment and well counts remaining “stubbornly low,” he added.
“Across this smaller industry, two themes will stand out. Firstly, the number of committed explorers has dwindled, and corporate diversity will remain unusually low.
“Secondly, much of the industry is chasing rather similar opportunities. Play and basin diversity will also be unusually narrow. This raises the spectre of sharper competition eroding margins – a threat not seen since 2014.”
Dr Latham expected operatorship to be “more concentrated than ever, with only the majors, a handful of NOCs and the top few independents leading high-impact drilling programmes. Reduced partnership options will also see the majors joining forces to manage risk.”
Most-favoured plays will likely be deepwater sweet spots offering high resource density, rapid commercialization, and breakeven below $50/bbl, typically around the Atlantic margins.
“Basins are a mix of the proven – such as Guyana, Mauritania, and the US Gulf of Mexico – and unproven frontiers. Examples of the latter with firm 2018 wells are in Nova Scotia, South Africa, and Namibia,” he said.
“Subsurface risk will not be off the agenda. Big explorers will be willing to drill new deepwater play tests where they see potential for material volumes, particularly economically-advantaged oil. Whether the plays are proven or not, the critical factor will be scope for straightforward development in a success case.”
But he warned that exploration’s share of upstream investment has slipped to below 10percent since 2016 and is not about to recover.
“Global investment in conventional exploration and appraisal will be around $37 billion in 2018,” he said. “This will be 7percent less than 2017 spend of $40 billion, and over 60percent below its 2014 peak.”
For some, the priority will be to reposition their portfolio for a lower breakeven future. For others, the focus will be on renewal after a period of inventory depletion, leading to strong competition for quality acreage, especially offshore Brazil and Mexico.
Following the general portfolio optimization and lower costs, he expected the industry to drill fewer, but better wells focused on plays that are commercially attractive.