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Wood Mackenzie: Annual Exploration Survey results indicate industry optimism

The results of Wood Mackenzie’s 11th annual Exploration Survey are in, and in 2019, the industry is optimistic. It has returned to profit, and the prospects look good.

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

“We’re seeing a continued recovery in the exploration sector, and this borne out by the drilling plans and new licenses we’re seeing,” Dr Andrew Latham, Vice President, Exploration, said.

“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,” Dr Latham 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 the survey, the global exploration budget will total about $40 billion in 2019. Drilling will account for about half of that, while 25% is earmarked for geological and geophysical surveys. Digitalization today accounts for about 8% 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 modeling and growing use of automated interpretation,” Dr Latham said.

“Digitalization 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 digitalization,” Dr Latham added.

Dr Latham said that 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 Wood Mackenzie’s survey, the industry is confident that it can break even with an average oil price of around $50/bbl.

Around 22% of the survey respondents believe that exploration can break even with Brent in a $55-60/bbl band, while a further 18% are comfortable in the $45-50/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 Dr Latham noted, this not only cuts costs, it helps improve drilling time – in some cases by as much as 30% – and allows for quicker project development.

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

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