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16 August 2023

Oil and Gas Exploration Spending Poised to Average $22 Billion Annually by 2027, Notes Wood Mackenzie

According to a report by Wood Mackenzie, expenditures for oil and gas exploration (excluding appraisal) are set to rebound from historic lows, averaging $22 billion annually in real terms over the next five years.

The projected rebound is driven by favorable exploration economics, the imperative for energy security, and the emergence of new frontiers. This will incentivize oil and gas companies, particularly National Oil Companies (NOCs) and Majors, to bolster their exploration spending through 2027.

"Explorers will become bolder in the coming years," stated Julie Wilson, Director of global exploration research at Wood Mackenzie. "While this rebound might surprise some, it must be seen in context. Exploration went through a boom during 2006-2014 and spend peaked at $79 billion (in 2023 terms). However, in the prior six years, the average was $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 growth trajectory is slated to begin in 2023, with projected spending reflecting a 6.8% increase over 2022 totals (in real terms). A pivotal driver for this heightened activity is the strong business case. Wood Mackenzie's data indicates that full-cycle returns from exploration have consistently exceeded 10% since 2018, reaching above 20% in 2022.

"These positive results have increased confidence in exploration," Wilson explained. "Improved outcomes stem from various factors, including portfolio high-grading alongside greater spending discipline and prospect selection. This ensures that only the most promising prospects are pursued, minimizing waste. Efficiency gains further contribute to enhanced returns across development and exploration endeavors."

In the long run, deepwater and ultra-deepwater areas will serve as prime growth opportunities for exploration. Regions like the Atlantic Margin of Africa and the Eastern Mediterranean are poised for significant growth, with anticipated spending in unspecified new frontiers.

"There are areas where leads and prospects are being developed using recent seismic data, such as Uruguay, southern Argentina, and deepwater Malaysia," Wilson added. "Future spending in 'success case' areas involves additional exploration following achievement, whether that's in a frontier like Namibia or Greece, or a more established province like Egypt's Nile Delta."