Oil and gas exploration spending will recover from historic lows to average $22 billion a year over the next five years, according to Wood Mackenzie.
Attractive economics, greater emphasis on energy security and the discovery of new resources will incentivise NOCs (national oil companies) and energy majors to boost exploration activity, the consultancy said in a new report.
“Explorers will become bolder in the coming years,” said Julie Wilson, director of global exploration research at Wood Mackenzie.
Oil and gas companies reported record profits last year after Russia’s invasion of Ukraine pushed Brent crude, the benchmark for two thirds of the world’s oil, to nearly $140 a barrel.
Brent, which has since given up most of its gains, is currently trading at $83 a barrel as Russian crude continues to flow into the market despite harsh sanctions.
Wood Mackenzie, which expects exploration spending to increase by 6.8 per cent this year over 2022 levels, said full-cycle returns have been consistently above 10 per cent since 2018 and exceeded 20 per cent in 2022.
“These positive results have increased confidence in exploration,” Ms Wilson said.
“Improved results are down to many factors. Portfolio high grading coupled with greater discipline in spending and prospect choice mean only the best prospects are drilled and waste is minimised,” she added.
Wood Mackenzie said that deepwater and ultra-deepwater exploration would provide the most growth opportunities in the long term.
The Atlantic Margin of Africa and the gas-rich Eastern Mediterranean will experience the highest growth, the consultancy said.
“There are areas where leads and prospects are being worked up with recent seismic data, for example Uruguay, southern Argentina and deepwater Malaysia,” Ms Wilson said.
In a report last month, Wood Mackenzie said the annual oil and gas investment does not need to rise substantially from current levels of $500 billion to meet peak demand in the 2030s.
Spend levels “not much higher” than the current run-rate can deliver the supply needed to meet demand through to its “peak and beyond”, the consultancy said.
International oil majors have reduced spending over the past few years under increasing pressure from governments and institutional investors.
The International Energy Forum has estimated that annual oil and gas upstream spending needs to increase to $640 billion by 2030, from $499 billion last year, to ensure adequate supplies.
Energy industry heads have blamed underinvestment in the sector for structural imbalances and growing volatility in the oil market.
Global oil demand is expected to expand by 2.2 million barrels per day this year, with China accounting for more than 70 per cent of the growth, according to the International Energy Agency.
However, growth in crude consumption is expected to slow to one million bpd next year as the post-pandemic economic rebound runs out of steam, the IEA said in its monthly oil market report last week.
Opec expects healthy oil market fundamentals in the second half as the global economy continues to recover from the coronavirus pandemic.
The group has forecast global oil demand growth of 2.4 million bpd for this year and 2.2 million bpd for 2024.