The exploration industry has fought its way back to profitability, and is now keen to stay there says industry analyst Wood Mackenzie in December 19 report. Explorers will continue their disciplined and cautious approach to ensure spending remains low and value from discovered barrels is maximised, Wood Mac stated.
The analyst said many explorers’ attention and success will continue to be focused on the Americas. Latin American plays account for one third of global large and giant prospects to be drilled in 2019. This region will also see one third of potential play-opening wells.
“Exceptional reservoirs in Brazil, Guyana and Mexico will attract the most investment following significant bonuses to participate (particularly in Brazil). We expect billion-boe scale volumes from these emerging and newly-proven plays, as has been the case in the last couple of years,” stated Andrew Latham, Vice President, Global Exploration
On the other side of the Atlantic, Southern and Eastern Africa will take second place in terms of drilling. On the eastern side of the globe, the drivers are more often above-ground.
“Many 2019-planned wells have the potential to open new plays or add large volumes. Worldwide, we expect 2019 discoveries to add some 15-20 billion boe of new resource,” Latham pointed out.
The recent uptick in exploration economics over the last two years shows an industry shaping up to be slimmer. Fewer companies are drilling fewer wells. In all regions, companies ranging from large to small independents decided to minimize or stop exploring. Only those with suitable capabilities and exploration risk tolerance continue. Even as average exploration returns rise to double-digits, newcomers will be few and far between. If anything, the current corporate landscape will continue to narrow, the analyst said.
“Exploration remains critical, indeed irreplaceable, for the majors and all eyes will continue to follow their wells. A small number of independent IOCs will also be readying their high-impact prospects. Less active in exploration in the coming year will be the private equity (PE) backed explorers,” the Vice President stated.
Companies that are sticking with exploration have renewed confidence. A stronger oil price, lower cost base, greater drilling success in 2017-2018, and a healthy inventory of new quality acreage have cheered up the industry. However, this more upbeat spirit has been hard gained and companies will be loath to give it away. Purse strings are not about to burst open. “We expect budget control and decision making to remain rigorous and companies to stay ruthlessly disciplined in selecting only their best prospects,” he said.
Global exploration and appraisal spending in 2019 will stay close to its current level – slightly below US$40 billion per year.
Exploration returned to profitability in 2017, with full-cycle returns well over 10%, whilst adding over 17 billion boe. This trend has continued into 2018, with over 10 billion boe discovered so far and doubtless more results and disclosures to come, the analyst said.