Favorable economics, the need for new reserves boost global oil exploration investments
Energize Weekly, October 3, 2023
Global oil and gas exploration and production investments are set for a big rebound, according to energy analysts Wood Mackenzie and Rystad Energy.
While not reaching the levels of the 2006-to-2014 boom years, budgets are recovering with estimated average annual spending of $22 billion between 2023 and 2027, according to an analysis by Julie Wilson, Wood Mackenzie research director for global exploration.
“Oil and gas companies largely prefer to keep a low profile when it comes to exploration, and budgets are rarely publicized,” Wilson wrote. “However, we know from conversations with leading explorers and recent licensing that the appetite for wildcatting remains strong.”
One element stoking the trend is the short supply of resources and reserves leading to new exploration being seen as a potential solution.
One example of exploration and productions initiatives is in the North Sea where Norwegian investment is expected to reach a record-high $21 billion in 2023, according Rystad Energy.
Several key projects have been approved in recent years, spurred by the country’s temporary tax regime, which aims to incentivize spending on the Norwegian continental shelf.
“This increase in investment is a positive development after several lean years in the industry and will be particularly welcomed by the oilfield service sector,” Rystad Energy said.
While United Kingdon North Sea investment has lagged, Prime Minister Rishi Sunak has made reviving oil and gas activity a priority with regulators opening the way for the development of the Rosebank off the coast of Shetland, the country’s largest untapped oil field.
UK North Sea oil and gas investments for 2023 are projected to be $5.7 billion, a quarter of the 2013 investment peak.
“With many developments in the pipeline, however, next year could see the highest number of projects sanctioned in a decade,” Rystad Energy said.” While three to five projects are sanctioned, on average, in the UK each year, 2024 could see up to 14 new oil and gas fields given the green light.”
Several factors are at play in creating a resurgence in oil and gas exploration – the energy shock from the war in Ukraine, advantageous economics, a dearth of booked resources, and new promising areas to explore, according to Wood Mackenzie.
“The energy shock caused by the Ukraine war has shifted the political narrative towards energy security and affordability, softening attitudes to fossil fuel use,” Wood Mackenzie said.
The combination of fiscal discipline from the recession and pandemic and record profits have bolstered corporate balance sheets. “This is helping to boost confidence and encourage a more bullish approach,” Wood Mackenzie said.
New areas of exploration such as Namibia offer opportunities, while advances in geoscience and imaging technology are making it possible to identify new plays.
But these trends, Wood Mackenzie said, could be hobbled by a failure to find high-quality prospects, a smaller number of operators with the expertise and resources, and workforce and supply chain problems.
Smaller firms also face the challenge of raising outside sources of financing for exploration, which are increasingly hard to find as major banks reduce their commitment to oil and gas.
“Given these constraints, it remains to be seen whether exploration spend across will be high enough to position the oil and gas sector to survive and thrive in an uncertain future environment,” the Wood Mackenzie analysis said.
In the North Sea, Norwegian production has declined 15 percent from its 2004 peak of 4.6 million barrels of oil equivalent, but with investment, it is set to rise, possible it could reach the 2004 level again in 2023. Thirty-five exploration wells are projected for 2023, with the number rising to 36 next year.
The largest UK projects after Rosebank are Cambo and Clair Phase 3. If all three are approved in 2024, it could represent the highest level of activity since 2013 with around $12 billion in future investments, Rystad said.
“Norway and the UK have overcome recent challenges and are on course to achieve significant milestones due to notable increases in investment, exploration success and production,” Rystad Energy said.
