Oil and Gas Exploration Spending Set for Recovery from Historic Lows, Predicts Wood Mackenzie

According to a new report from Wood Mackenzie titled 'Exploration quietly recovering', oil and gas companies, led by NOCs and Majors, are expected to increase exploration spending through 2027. This rebound is fueled by attractive exploration economics, the necessity for energy security, and the emergence of new exploration frontiers.

Julie Wilson, Director of global exploration research at Wood Mackenzie, stated, "Explorers will become bolder in the coming years. While this rebound might surprise some, it must be seen in context. Exploration went through a boom during 2006 – 2014 and spend peaked at US$79 billion (in 2023 terms). But in the prior six years, the average was US$27 billion per year in 2023 terms. While spending will increase, it won’t return to anywhere close to past highs and there will likely be a ceiling on the increase. There is a lack of high-quality prospects that would satisfy today’s economic and ESG metrics and a continued focus on capital discipline will keep a lid on overspending."

The projected growth is set to commence in 2023, with spending expected to rise by 6.8% compared to 2022 totals (in real terms). A significant driver behind this upswing is the robust business case. Wood Mackenzie notes that full-cycle returns from exploration have consistently exceeded 10% since 2018 and surpassed 20% in 2022.

"These positive results have increased confidence in exploration," Wilson explained. "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 minimized. Efficiency gains also serve to enhance the returns from both development and exploration."

In the long term, deepwater and ultra-deepwater areas will offer the most growth opportunities for exploration. Regions like the Atlantic Margin of Africa and the Eastern Mediterranean are projected to experience the highest growth, and there will be expenditure in unspecified new frontiers.

"There are areas where leads and prospects are being worked up with recent seismic data, for example Uruguay, southern Argentina, and deepwater Malaysia," added Wilson. "Future spend in 'success case' areas is additional exploration following success, whether that's in a frontier like Namibia or Greece, or a more established province like Egypt's Nile Delta."