Wood Mackenzie has indicated hard competition for prime exploration targets as sector emerges from downturn in 2018
Dr Andrew Latham, vice-president of Wood Mackenzie for research and global exploration, said, “We expect most companies will maintain a highly cautious approach to exploration for a while yet. Competition for the best opportunities will be fierce. Industry investment and well counts will remain stubbornly low in 2018.”
The global consultancy group has identified five issues that stand out this year, especially the two. “Firstly, the number of committed explorers has dwindled and corporate diversity will remain unusually low. Secondly, much of the industry is chasing rather similar opportunities. Play and basin diversity will also be unusually narrow. This raises the spectre of sharper competition eroding margins – a threat not seen since 2014,” Latham added.
The five major themes Wood Mackenzie expects to affect the exploration sector in 2018 are:
· Fewer explorers focused on fewer plays.
· Investment remaining supressed.
· Big wells mainly in deepwater and frontiers.
· Acreage reloading gathering pace.
· Long overdue move back to profitability.
Dr Latham said, “Once again, the Majors will be the explorers to watch. Too large to match the retrenchment to the US shale of the US independents, they know that conventional exploration will be needed for long-term renewal.”
While Asian NOCs could be set to increase exploration in 2018 as part of a sustainable resource renewal strategy to address structural production declines, Wood Mackenzie believes the outlook is mixed for the independents.
The most-favoured plays are set to be deepwater sweet spots promising high resource density, rapid commercialisation and breakeven prices below US$50 per bbl. 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, with unproven frontiers being Nova Scotia, South Africa and Namibia.
Deepwater exploration is expected to boost exposure to gas, a core strategic objective for larger companies.
Dr Latham added that there are early signs that the exploration sector may soon return to profit. He said, “Based on the volumes that we can already measure, resource discovery costs are close to US$2 per boe. If these volumes have average development values of around US$2 per boe, then the year’s discoveries will indeed be worth more than they cost to find.”
The industry should achieve double-digit returns in 2018. Reset portfolios and lower costs are already paying off. Many exploration costs have halved versus their 2014 peak, helped by quicker drilling of most wells. Most of the upcoming wells will avoid the expensive rig contracts from the boom years. Deflation, standardisation and project re-design are all helping reduce development costs.
