Oil and gas analysts are anticipating a bounce back in exploration spend from the historic lows of recent years.
Investment, excluding appraisal, is expected to average $22 billion per annum in real terms up to 2027, according to a new report from Wood Mackenzie.
Driving the looming increase is tailwinds from attractive exploration economics, the need for energy security and the emergence of new frontiers.
Those three factors will combine to ill incentivise oil and gas companies, led by NOCs and majors, to increase exploration spending over the next five years.
The predictions for investment are included in Wood Mackenzie’s latest report, entitled ‘exploration quietly recovering’.
“Explorers will become bolder in the coming years,” said Julie Wilson, director of global exploration research at the consultancy group.
“While this rebound might surprise some, it must be seen in context. Exploration went through a boom during 2006-2014 and spend peaked at US$79 billion (in 2023 terms). But in the prior six years, the average was US$27 billion per year in 2023 terms.
“While spending will increase, it won’t return to anywhere close to past highs and there will likely be a ceiling on the increase. There is a lack of high-quality prospects that would satisfy today’s economic and ESG metrics and a continued focus on capital discipline will keep a lid on overspending.”
Beginning this year, growth in spending is projected to increase 6.8% over 2022 totals – in real terms.
A major driver for this increased activity, WoodMac explains, is the robust business case.
According to the group, full-cycle returns from exploration have been consistently above 10% since 2018 and exceeded 20% in 2022.
“These positive results have increased confidence in exploration,” said Wilson.
“Improved results are down to many factors. Portfolio high-grading coupled with greater discipline in spending and prospect choice mean only the best prospects are drilled and waste is minimized. Efficiency gains also serve to enhance the returns from both development and exploration.”
In the long term, WoodMac expects deepwater and ultra-deepwater regions to provide the most growth opportunities for exploration, specifically the Atlantic Margin of Africa and the Eastern Mediterranean.
“There are areas where leads and prospects are being worked up with recent seismic data, for example Uruguay, southern Argentina and deepwater Malaysia,” added Wilson.
“Future spend in ‘success case’ areas is additional exploration following success, whether that’s in a frontier like Namibia or Greece, or a more established province like Egypt’s Nile Delta.”
Recommended for you
