Exploration to increase in 2018 but investment constraints remain

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(Rigzone) Exploration activity will increase in 2018, but market uncertainty and the need to manage debt levels will remain key constraints to investment.

That is the view of oil and gas analysts at BMI Research, who highlighted that a recent three year downturn had forced exploration and production (E&P) companies to reduce spending and improve cost management.

The sector is benefiting from a resurgence in cash flow amid higher oil prices and E&P companies are preparing to ramp up activity this year to expand their portfolio, targeting a number of new frontier markets, according to BMI.

Despite increasing confidence, however, E&P companies will continue seeking a balance between increasing spending on new projects, reducing leverage and increasing shareholder distributions, BMI analysts said in a brief research note sent to Rigzone.

“We believe that spending caution will prevail over the coming months as companies maintain financial discipline,” the analysts stated.

BMI’s prediction follows news that global conventional discoveries hit a record low in 2017, coming in at less than seven billion barrels of oil equivalent (boe), according to Rystad Energy.

This was the lowest figure since at least 2012, Rystad highlighted, when 30 billion boe was discovered around the globe. The total volume of global conventional discoveries stood at 16 billion boe in 2013, 15 billion boe in both 2014 and 2015, and eight billion boe in 2016.

“We haven’t seen anything like this since the 1940s,” Sonia Mladá Passos, senior analyst at Rystad Energy, said in an organization statement in December 2017.

“The discovered volumes averaged at [around] 550 million barrels of oil equivalent per month. The most worrisome is the fact that the reserve replacement ratio in the current year reached only 11 percent (for oil and gas combined), compared to over 50 percent in 2012,” Passos added.

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