Westwood Report: High Impact Exploration Discovery Sizes Halved, Costs Up Sixfold Since 2019
Westwood Global Energy Group’s latest report highlights a significant decline in average discovery sizes and a notable increase in finding costs in high impact exploration. From 2019 to 2023, the average discovery size dropped from nearly 500 million barrels of oil equivalent (mmboe) to approximately 220 mmboe. Concurrently, finding costs have surged sixfold, reaching $1.2 per barrel of oil equivalent (boe).
Factors Influencing the Decline
Several factors contribute to these trends:
- Energy Transition Strategies: Companies are prioritizing renewable energy investments over traditional oil and gas exploration.
- Industry Consolidation: Mergers and acquisitions have reduced the number of active exploration companies, leading to fewer exploratory drills.
- Rising Well Costs: Increased operational costs make new exploration ventures less financially viable.
- Reduced Activity in Former Hotspots: Regions previously known for high exploration success are seeing decreased activity due to resource depletion and geopolitical risks.
Success Rates and Company Participation
Commercial Success Rates.
The commercial success rate of high impact exploration has declined by seven percentage points, reaching its lowest since 2018. Frontier play success rates have stabilized at below 10%, reflecting the inherent risks of exploring uncharted territories.
Participation and Leadership.
The number of companies engaged in high impact drilling dropped from 99 in 2019 to 68 in 2023. Supermajors and National Oil Companies (NOCs) dominate this space, holding about 60% of well equity and leading in resource discovery and commercial success rates.
Optimism Amidst Challenges.
Promising Discoveries
Despite the overall decline, recent discoveries, such as those in Namibia’s Orange Basin, indicate that significant hydrocarbon volumes remain untapped. Additionally, the average cycle time from discovery to production has decreased, with oil projects reaching production a year faster than gas projects.
Changing Dynamics in Exploration.
Graeme Bagley, Head of Global Exploration and Appraisal at Westwood, notes a decoupling of exploration drilling from previous oil prices. High oil prices no longer automatically drive increased drilling activity. Instead, energy transition strategies and industry consolidation are reshaping how companies approach reserve replenishment.
Comparative Analysis with Renewable Energy Investments.
The shift in exploration dynamics mirrors broader energy trends. Investment in renewable energy has surged, driven by global efforts to combat climate change. Companies like BP and Shell have announced ambitious plans to achieve net-zero emissions, influencing their exploration strategies. This pivot impacts high impact exploration as resources are redirected towards sustainable energy projects.
Technological Innovations and Their Impact.
Advancements in technology, such as AI and machine learning, are revolutionizing exploration techniques. These technologies improve the accuracy of geological surveys and reduce the time and cost associated with exploratory drilling. As these innovations become more widespread, they may mitigate some of the increased finding costs highlighted in Westwood’s report.
Conclusion.
Westwood’s report provides a comprehensive overview of the current state of high impact exploration, highlighting key challenges and emerging trends. The decline in discovery sizes and increased finding costs reflect broader industry shifts towards renewable energy and more efficient, consolidated operations.
While the landscape is changing, significant opportunities remain, underscored by recent discoveries and technological advancements. This dynamic environment demands strategic adaptation from energy companies to balance traditional exploration with the transition to a more sustainable energy future.
