Following the 2014 oil price crash, exploration activities had started to rebound, reaching a culmination in 2019. This rebound, combined with the emergence of new multibillion-barrel plays, such as those in Guyana and Mauritania had fostered a climate of renewed optimism, which had spilled over into the early months of 2020 and was expected to continue.
However, the dual supply-demand shock and subsequent oil price crash caused by the Covid-19 pandemic has forced many explorers to reduce their 2020 planned capital expenditure budgets (by between 10%-50%), which has resulted in a multi-year low for exploration activities.
All major indicators for exploration activity levels have seen a significant decline in 2020 as the impacts of the Covid-19 pandemic continue to wreak havoc on E&P companies’ ability to operate as originally planned for the year. The number of international rigs has declined by 20% and the number of new seismic contracts awarded has dropped by 45%. Although these figures are year-to-date comparisons with 2019, activity levels are unlikely to significantly rebound before year-end. Drilling operations have also reduced, which has been reflected in the number discoveries made year to-date and the uptake of new acreage awards has also seen a significant decline compared to 2019.
Graph source: Baker Hughes
Although there has been a major drop in exploration activity this year, there have been some diamonds in the rough such as the Liuperd-1 well, which encountered 73 m of net gas-condensate pay in South Africa, Turkey’s Tuna-1 well, which is reported to contain 405 Bcm of gas resources, and the Jebel Ali gas discovery in the UAE. In addition to these significant discoveries other high-impact drilling is currently ongoing such as BP’s Ironbark-1 well in Australia, which spud in late October.
Guyana and Suriname stand out this year with six major oil discoveries that further confirm the region as an exploration hotspot. Guyana has been an area of interest for many of the major IOCs and in 2020 the number of discoveries in the Stabroek Block has increased to 18 following the Uaru, Yellowtail-2 and Redtail discoveries. In Suriname, three discoveries: Sapakara West, Maka Central, and Kwaskwasi, all located in Block 58, have also helped further de-risk the basin that straddles the offshore area of the two countries.
The outlook for exploration is a mixed bag. Although there have been discoveries this year, the pandemic has had far reaching impacts upon the industry and companies have been forced to re-evaluate future spending and priorities. The landscape for oil and gas companies is also changing rapidly as players gravitate away from frontier regions. Recently BP announced that it will no longer explore in ‘new’ countries as they present a high level of risk. The capital investment pool for such activities may also become more constrained as some investment groups had already begun to turn their backs on the oil and gas industry prior to pandemic, motivated primarily by a decline in demand growth and the rise of environmental, social, and corporate governance (ESG) investing, which has caused a dampening in the appetite for shares in large polluters. The energy transition coupled with capital constraints may be driving some in the industry away from frontier exploration drilling and towards shorter-cycle, infrastructure-led exploration (in order to recoup investments quickly) and towards renewable energies.