In the last century, the discovery of new oil provinces in Guyana, Mozambique, Cyprus, Israel and Senegal, have certainly made the hunt for crude quite attractive. But will exploration lose its appeal in light of the COVID-19 pandemic and the increasing need to turn away from fossil fuels by 2040? In the eyes of Wood Mackenzie, this just might be the case especially when certain key factors are taken into consideration.
Expounding on this front, Wood Mac experts recently noted that global spend on conventional exploration hit a peak of almost US$100 billion in 2014. The following year however, there was a price crash and budgets for oil and gas companies fell 70% to U$$30 billion. Just as companies were recovering from that state of affairs, there was an oil price war between Saudi Arabia and Russia during the rise of the COVID-19 pandemic. The experts noted that this will take off another third at least from the budgets of exploration companies. In fact, spending is expected to hover around US$15 billion or US$20 billion and remain the new norm.
Apart from the cuts to budgets due to the fall in prices, Wood Mac specialists pointed out that they are seeing signs of a significant strategic shift for companies. In this regard, they noted that companies that have been committed to exploration are reassessing whether it will be central to the business model in future. Many oil giants such as Shell and British Petroleum have already committed to reducing their carbon footprint by 2050. The Wood Mac employees that that diversifying and allocating capital into zero-carbon assets implies a relative downgrading of oil and gas “so it therefore means that if upstream is going to shrink, you won’t need to explore as much.”
Another crucial point for consideration is the fact that there is plenty of discovered oil and gas to meet demand for years.
Taking the foregoing into consideration, the experts opined that exploration will actually scale down significantly. The way forward they said, is for exploration to pivot from reserve replacement to a portfolio optimization tool so as to bolster resilience and sustainability.
