The global oil and natural gas industry is optimistic about future prospects, with conventional exploration still the primary resource replacement option, according to Wood Mackenzie’s 11th annual survey.
Researchers canvassed the opinions of 258 senior energy leaders around the world to gauge sentiment on a range of issues.
“We’re seeing a continued recovery in the exploration sector, and this is borne out by the drilling plans and new licenses we’re seeing,” said Wood Mackenzie’s Andrew Latham, vice president of exploration.
Several themes emerged.
“Conventional exploration is still viewed as the primary resource replacement option,” Latham said. “And lower costs, both for exploration and development, are key to exploration’s return to value creation.”
High-quality prospects in deepwater sweet spots, such as the Gulf of Mexico, Brazil, Guyana and the East Mediterranean are attracting the most attention. Rystad Energy in April said conventional oil and gas discoveries in 1Q2019 reached an estimated 3.2 billion boe.
According to Wood Mackenzie’s survey, global exploration budgets will total about $40 billion this year, with drilling accounting for about one-half, while 25% is earmarked for geological and/geophysical surveys.
Digitalization now accounts for about 8% of the total global spend but should increase as new seismic processing techniques, machine learning and artificial intelligence become fundamental tools.
“Digitalization offers exploration the possibility of better resolution of the subsurface, better seismic modeling and growing use of automated interpretation,” Latham said. “Digitalization has become a consistent feature on our surveys. The survey results back up our expectation that the exploration industry, led by the majors, will spend billions each year on digitalization.”
Efficiency gains, which were hard-won during the downturn, “mean that doing more with less is now standard. And while there is more investment in the exploration pipeline, that cash goes farther than before.
“According to our survey, the industry is confident that it can break even with an average oil price of around $50/bbl,” Latham said.
About 22% of the respondents expect exploration to break even with Brent prices in a $55- 60/bbl band, while 18% were comfortable in the $45-50/bbl range.
“Four years ago, before the oil price crash, companies were looking at a breakeven price of around $80/bbl,” Latham noted.
According to survey respondents, exploration’s economics have improved as projects become less complex.
Explorers are looking at prospects in “less challenging basins,” according to Wood Mackenzie, which has reduced costs and improved drilling times by as much as 30%, allowing for quicker development.
About 36% of the respondents said they would invest more in exploration this year, while only 13% reduced budgets from 2018. About 38% plan to drill more wells this year, while 10% expect their year/year well count to be lower.