EDINBURGH, UK – Wood Mackenzie does not foresee a surge in exploration activity this year.
Dr. Andrew Latham, vice president, Research, Global Exploration, at the company said: “We expect most companies will maintain a highly cautious approach to exploration for a while yet.
“Competition for the best opportunities will be fierce. Industry investment and well counts will remain stubbornly low in 2018.”
He pointed out that the number of companies committed to exploration has fallen away, and that much of the industry is pursuing similar opportunities. As a result, play and basin diversity will likely be unusually narrow.
Wood Mackenzie’s five trends to watch for in the sector this year are:
- Fewer explorers focused on fewer plays
- Investment remaining suppressed
- Big wells mainly indeepwater and frontiers
- Acreage building gathering pace
- A return to profitability.
Operatorship looks set to be more concentrated than ever, the consultant claims, with only the majors, a few NOCs and the larger independents drivinghigh-impact drilling.
Dr. Latham said: “The majors sense a bottom-of-the-cycle opportunity to build acreage at low cost. Their exploration cuts have been less deep and their overall market share will continue to grow.”
Asian NOCs could look to step up exploration to address structural production declines.
Most-favored will probably be the deepwater, high resource plays, offering rapid commercialization and break-even prices less than $50/bbl.
These are concentrated mainly around the Atlantic margins, and comprise a mix of proven basins offGuyana, Mauritania, and the US Gulf of Mexico, and unproven frontiers, including Nova Scotia, South Africa, and Namibia.
Deepwater exploration will also boost exposure to gas, which according to the consultant is a core strategic objective for most of the larger companies. Their main objective will be a straightforward development in the event of a discovery.
Wood Mackenzie claims that exploration’s share of upstream investment has slipped to less than 10% since 2016.
Dr. Latham said: “Global investment in conventional exploration and appraisal will be around $37 billion in 2018…7% less than the 2017 spend of $40 billion, and over 60% below its 2014 peak.
“The majors’ investment will be cut back relatively less, trimmed by around 4% versus 2017. As some of the last outstanding pre-crash high-rate rig contracts roll over, average well costs should trend lower.”
Around 40 licensing rounds could be staged this year, the highest-profile of which will once again be those in Brazil and Mexico.
Despite the overall caution, the signs are that the exploration sector could soon return to profit, Latham added.
“Based on the volumes that we can already measure, resource discovery costs are close to $2/boe. If these volumes have average development values of around $2/boe, then the year’s discoveries will indeed be worth more than they cost to find.”
For many, exploration costs have halved compared with their 2014 peak, helped by quicker drilling of most wells, and most of the planned wells will not be subject to the expensive rig contracts typical of the boom years.
Standardization and project re-design are also helping to reduce development costs.