Woods survey shows increased optimism in oil exploration

By Luke Geiver | May 13, 2019

The results of Wood Mackenzie’s eleventh annual Exploration Survey are in. In 2019, the industry is optimistic. It has returned to profit, and the prospects look good.

We canvassed opinion of 258 senior energy leaders and exploration professionals from across the global exploration sector, seeking opinion on a range of issues.

Andrew Latham, vice president, exploration said: “We’re seeing a continued recovery in the exploration sector, and this borne out by the drilling plans and new licences we’re seeing.”

“A number of key themes emerged in our survey. Conventional exploration is still viewed as the primary resource replacement option. And lower costs, both for exploration and development, are key to exploration’s return to value creation,” he said.  

High-quality prospects in deepwater sweet spots, such as Brazil, Guyana, the Gulf of Mexico and the East Mediterranean, are attracting the most attention.

According to our survey, the global exploration budget will total about $40 billion in 2019. Drilling will account for about half of that, while 25 percent is earmarked for geological and geophysical surveys. Digitalization today accounts for about 8 percent of the total spend, but this will increase as new seismic processing techniques, machine learning and AI become fundamental tools for explorers.

“Digitalization offers exploration the possibility of better resolution of the subsurface, better seismic modelling and growing use of automated interpretation,” Latham said, adding, “Digitalisation has become a consistent feature on our surveys. The survey results back up our expectation that the exploration industry, led by the majors, will spend billions each year on digitalisation.”

Efficiency gains—hard-won during the downturn—mean that doing more with less is now standard. And while there is more investment in the exploration pipeline, that cash goes farther than before. According to our survey, the industry is confident that it can break even with an average oil price of around $50 per barrel.   

Around 22 percent of the survey respondents believe that exploration can break even with Brent in a $55 to $60/bbl band, while a further 18 percent are comfortable in the $45 to $50/bbl range. Four years ago, before the oil price crash, companies were looking at a break even price of around $80/bbl.

According to survey respondents, exploration’s economics have been improved by the move towards less project complexity. Explorers are looking at prospects in less challenging basins, and as Latham noted, this not only cuts costs, it helps improve drilling time—in some cases by as much as 30 percent—and allows for quicker project development.

About 36 percent of those surveyed said they would be investing more on exploration this year, while only 13 percent had reduced their budgets from last year. An even greater number (38 percent) said they planned to drill more wells this year while just 10 percent of respondents expect their well count to be lower than in 2018.