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Exploration sector gets its mojo back
Wood Mackenzie’s 11th annual exploration survey indicates that the oil and gas industry is optimistic for 2019, it has returned to profit and the prospects look good.
The consultancy canvassed the opinions of 258 senior energy leaders and exploration professionals from across the global exploration sector.
Dr Andrew Latham, Vice President, Exploration says: ‘We’re seeing a continued recovery in the exploration sector, and this borne out by the drilling plans and new licences we’re seeing.
A number of key themes emerged in our survey. Conventional exploration is still viewed as the primary resource replacement option. 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 Brazil, Guyana, the Gulf of Mexico and the East Mediterranean, are attracting the most attention.
According to the survey, the global exploration budget will total about $40bn in 2019. Drilling will account for about half of that, while 25% is earmarked for geological and geophysical surveys. Digitalisation today accounts for about 8% of the total spend, but this will increase as new seismic processing techniques, machine learning and artificial intelligence (AI) become fundamental tools for explorers.
Dr Latham says: ‘Digitalisation offers exploration the possibility of better resolution of the subsurface, better seismic modelling and growing use of automated interpretation… The survey results back up our expectation that the exploration industry, led by the majors, will spend billions each year on digitalisation.’
He says that efficiency gains – 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 the survey, the industry is confident that it can breakeven with an average oil price of around $50/b.
Around 22% of the survey respondents believe that exploration can breakeven with Brent in a $55–60/b band, while a further 18% are comfortable in the $45–50/b range. Four years ago, before the oil price crash, companies were looking at a breakeven price of around $80/b.
According to survey respondents, exploration’s economics have been improved by the move towards less project complexity. Explorers are looking at prospects in less challenging basins. Dr Latham notes this not only cuts costs, it helps improve drilling time – in some cases by as much as 30% – and allows for quicker project development.
About 36% of those surveyed said they would be investing more on exploration this year, while only 13% had reduced their budgets from last year. An even greater number (38%) said they planned to drill more wells this year, while just 10% of respondents expect their well count to be lower than in 2018.
