Exploration Spend To Stay Low, But Boost Gas: WoodMac

Investment in oil and gas exploration will remain “stubbornly low” this year, says global consultancy Wood Mackenzie, but exposure to gas is set to increase as explorers seek out deepwater and frontier plays.

Although the number of committed explorers has dwindled in recent years, WoodMac says there is fierce competition for prime exploration targets as the sector emerges from its post-2014 downturn.

Global investment in conventional exploration and appraisal will be around $37bn in 2018, forecasts WoodMac, which is 7% less than last year's spend of $40bn, and over 60% below its 2014 peak.  Most-favoured plays will be deepwater sweet spots promising high resource density, rapid commercialisation and breakeven prices below $50/barrel, the consultancy argues.

“Most of the best of these are around the Atlantic margins. Basins are a mix of the proven – such as Guyana, Mauritania, and the US Gulf of Mexico – and unproven frontiers, including [Canada's] Nova Scotia, South Africa, and Namibia,” said WoodMac’s vice president of research into global exploration, Andrew Latham. 

“Deepwater exploration will boost exposure to gas, a core strategic objective for most larger companies. Whether the plays are proven or not, the critical factor will be scope for straightforward development in the event of a discovery,” he added.

WoodMac identifies five key themes affecting the exploration sector in 2018: fewer explorers focused on fewer plays; investment remaining depressed; big wells mainly in deepwater and frontiers; acreage reloading gathering pace; and a long overdue move back to profitability.

"Once again, the majors will be the explorers to watch… they know that conventional exploration will be needed for long-term renewal [and] sense a bottom-of-the-cycle opportunity to build acreage at low cost," said Latham. He said the majors’ 2018 investment in exploration will be trimmed by 4% relative to 2017, so less than the industry as a whole. 

Some 40 licensing rounds will run through 2018, with competition for quality acreage intensifying as majors and big independents chase the same opportunities – particularly offshore Brazil and Mexico.