The resource exploration industry has a good chance of achieving double-digit returns in 2017, as smarter portfolio choices and lower costs are already paying off, says analytics business Wood Mackenzie exploration VP Dr Andrew Latham.
“Wood Mackenzie's analysis of the 2017 global exploration outlook shows that gas exploration in 2017 will continue its transformation into a smaller, more efficient industry, and overall investment will, at best, match 2016’s expenditure of around $40-billion, and may yet fall further.”
According to Wood Mackenzie, some of the emerging exploration themes in 2017 include exploration for piped gas opportunities near undersupplied markets such as parts of North Africa, Eastern Europe and Latin America, de-emphasis of oversupplied liquefied natural gas plays, and the shunning of high-cost frontiers – such as the ice-impacted offshore Arctic and extreme high-pressure and temperature plays.
Latham adds that further bolstering the positive outlook for this year is that costs may hold up close to 2016 numbers and flat budgets should mean exploration’s headcount cuts are now mainly in the past.
“The majors and a handful of bolder independents will drill most of the wells to watch, as was the case in 2015 and 2016. Wood Mackenzie expects the best discoveries to come from new plays and frontiers, despite greater emphasis on infrastructure-led drilling from many explorers,” he adds.
Latham further explains that more than half of the volumes are expected to be found in deep water.
“Here some costs will fall to $30-million or less, with full-cycle economics that are positive at less than $50/bl,” Latham says.
According to Wood Mackenzie's report, titled ‘Global Exploration: What to Look for in 2017’, the industry has cut exploration spend as a proportion of overall upstream investment more than other upstream spending. Its share of such investment will dip to a new low of just 8% in 2017.
An eventual return to historic norms – around one dollar in seven – depends on oil price recovery.
“Wood Mackenzie expects the Brent price to rise sharply from 2019, averaging at $77/bl in real terms for the year. If this happens, then recovery in exploration expenditure will follow a year or two later,” Latham adds.
"The industry is focusing on acreage capture and reloading for the longer term. Companies willing to sign acreage with firms for 2017 wells may be spoilt for choice. A spate of new licensing in outer slope plays will continue as explorers digest news of better-than- expected reservoir quality and source rock potential in these ultradeep water settings," Latham concludes.