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Following five years of single-digit returns, the global oil exploration industry stands a good chance of achieving double-digit returns next year, as lower costs as well as smarter and leaner portfolio choices are expected to boost profitability, energy consultancy Wood Mackenzie said in a new study published on Friday.
“The industry has a good chance of achieving double digit returns in 2017. Smarter portfolio choices and lower costs are already paying off,” Dr Andrew Latham, vice president of exploration at Wood Mackenzie, said, commenting on the study ‘Global Exploration: What to look for in 2017’.
Next year, WoodMac expects the exploration sector to go on changing into a smaller and more efficient industry.
Although total investment would match this year’s total expenditure of US$40 billion at best, and could drop further, lower costs across the board would help well counts stay close to the 2016 figures.
As it happened last year and this, the oil majors and a small number of bolder independent exploration companies are expected to drill most of the wells worth watching, according to Wood Mackenzie.
The consultancy expects the best discoveries next year to take place in new plays and frontiers.
“More than half of the volumes are expected to be found in deep water. Here some well costs will fall to US$30 million or less, with full-cycle economics that are positive at less than US$50 per barrel,” Latham said in Wood Mackenzie’s press release.
The share of exploration of upstream investment would drop to a new low of just 8 percent next year. A return to the normal one dollar in seven would depend on how fast oil prices would be recovering, according to WoodMac.
Related: BP CEO Dudley: We’ll Double Our North Sea Oil Production By 2020
The consultancy sees Brent price shooting up from 2019 onwards and averaging US$77 a barrel in real terms that year.
“After a decade in the doldrums, the Majors' returns from conventional exploration improved to nearly 10% in 2015. The rest of the industry is heading in the same direction. Fewer, better wells promise a brighter future for explorers,” Latham noted.
Last month, a WoodMac report suggested international oil majors would have to hack off some US$370 billion from their total costs this year and next. This will result in a production decline of around 3 percent this year and 4 percent next year.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…