The growing threat of climate change and the evolving transition toward cleaner energy alternatives are threatening spending on traditional oil and gas exploration worldwide, according to a new report.
The largest energy companies are reducing exploration budgets and facing more pressure from shareholders to conduct more exploratory drilling around the world, even amid growing reserves of oil and gas, according to energy research firm Wood Mackenzie.
“Some investors are questioning the need to explore at all given the vast discovered resource base yet to be developed,” said Alana Tischuk, of Wood Mackenzie’s global exploration team. “The move from Big Oil to Big Energy is under way, but building materiality will take time.”
The major energy giants will explore less, but exploration won’t end anytime soon.
“Companies will drill in the hope of finding better resources than those they already have – lower cost barrels with a higher margin,” Tischuk added.
Exploration will focus on valuable prospects in new and emerging plays — and less in the United States, the report said. Energy majors such as Exxon Mobil and Chevron are likely to remain prominent in high-impact exploration plays, but national oil companies in the Middle East, China and other regions, which are less exposed to investor concerns, may also step up exploration.
And despite low natural gas prices worldwide, many companies still see exploration for cleaner-burning gas as critical to bridging the transition toward renewable energy.
Globally, Wood Mackenzie projects that 500 to 600 wildcat wells will be completed during 2020 — many in international offshore regions. That would add about 15 billion barrels of oil equivalent resources, in line with industry performance since the last oil bust began in late 2014. Investments should hold steady in the range of $25 billion to $30 billion worldwide — similar to the amount in 2019. Exploration budgets could decline by as much as 15 percent, however, as companies aim to be more efficient.
A lot of the exploration will remain in Latin American and South America, from Mexico to Guyana, where Exxon Mobil started producing oil in December, as well as in sub-Saharan Africa. French energy major Total has high hopes for South Africa after making the giant Brulpadda gas discovery in 2019. Total also will drill its giant Venus oil prospect off the coast of Namibia. Royal Dutch Shell and Dallas-based Kosmos Energy also are hunting oil offshore of Namibia.
“Drilling in Guyana will continue both in the prolific Stabroek block and beyond it,” Tischuk said. “In Suriname, where (Houston-based) Apache Corp. made the giant Maka Central discovery at the end of last year, we expect wells on four blocks in 2020.”
Apache recently formed a joint venture with Total for its offshore Suriname exploration.
With added exploration, more companies are moving out of low-risk acreage positions if they don’t have immediate exploration success, Tischuk said.
“Traditionally, majors have held their acreage to the end of term, but we expect them to adopt the swift turnaround approach of their smaller, nimbler cousins,” she added. “Many of the areas the majors have added are ultra-frontier, giant blocks, added for minimal commitments. This trend of fast turnover of new acreage may not become apparent in 2020, but instead materialize in the next three years or so.”
And more national oil companies are expected to extend their exploration range worldwide. Qatar Petroleum has sought to go international, and more Chinese firms are exploring in Latin America and Africa.
Also, fewer companies will handle the exploration load. The corporate landscape has fallen by almost 50 percent since 2013. Many of the companies being squeezed out are small independents and private equity-backed companies that lack the cash or the risk appetite to stay in the longer-term exploration game.
Jordan Blum is a senior energy reporter at the Houston Chronicle since 2015. He has extensively covered the industry from the 2014 bust in oil prices to the more recent boom in West Texas’ Permian Basin. He has written about everything from Texas’ national lead in renewable wind power to the Houston area’s growing dominance in petrochemical and plastics manufacturing.
Previously, Jordan was an award-winning reporter at The Advocate in Baton Rouge and New Orleans as a statehouse reporter and education writer, and then as the newspaper’s Washington Bureau chief. Jordan is a New Orleans native who graduated from Texas Christian University with a journalism degree before going back to work at daily newspapers in Louisiana.
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