Investment in oil and gas exploration has decreased by two-thirds over the past decade. However, the industry remains crucial for decarbonization and providing advantaged barrels during the energy transition, as stated in the latest Horizons report from Wood Mackenzie.

The world has ample current resources, with about 3 trillion barrels of oil equivalent (boe) in inventory, according to the report. This translates to resource lives of more than 45 years for oil and over 60 years for gas.

"With so much in place, it begs the question – why is exploration still needed?" said Andrew Latham, senior vice-president at Wood Mackenzie.

"It's important to point out that newly discovered fields would not increase demand, as demand neither grows when exploration succeeds nor shrinks when it fails. What can be said is that successful exploration cuts carbon intensity, lowers the cost of oil and gas to consumers, and adds value for both resource holders and explorers. As demand is proving resilient, investment in new supply is needed to displace dirtier alternatives," he said. 

Cutting carbon

The report indicates that reducing scope 1 and 2 emissions, which occur during extraction and refining, is more effectively achieved by discovering new fields rather than improving existing ones. New fields benefit from modern decarbonization technologies and increased facilities throughput, making them cleaner.

New fields about to begin production in the next few years will average Scope 1 and 2 emissions intensity of 17 _kgCO2e/boe over 2025-30, compared with existing supply from mature fields averaging 28 kgCO₂e/boe, according to Wood Mackenzie analysis. 

"Potential gains are not trivial," said Latham. "Exploration through the current decade is on track to provide 12% of global oil and gas supply. If we assume that these new fields displace existing supply options with emissions intensity typical of older fields, then global Scope 1 and 2 emissions in 2030 would be cut by around 6%, or 100 million metric tons per annum (mtpa) CO₂e."

High-value performance

Economics has also driven activity. The industry’s exploration performance has been attractive since upstream costs reset a decade ago.
 
"Exploration has been the most economic means of rejuvenating a portfolio with new fields, particularly for companies that seek advantaged resources, or those that are low carbon and high value," said Latham. "Such prized assets are difficult to buy at a good price; it's much better to discover them."
 
According to the report, full-cycle returns have been consistently in double digits every year since 2015, averaging 15%. New field discoveries are valued at much more than they cost to find, with net value creation of over $160 billion since 2015, assuming an industry planning price of $65/bbl Brent long term (almost double the current market value of BP plc).
 
Over the past 5 years, Wood Mackenzie calculates industry-average breakeven prices for exploration at around $45/boe (Brent, NPV10%) versus $65/boe for M&A. 

Frontier deepwater exploration 

Frontier plays, defined as having no production from similar reservoirs in the same basin, stand out by resource scale. Even more so, deepwater exploration in frontier basins can offer the most effective plays. 
 
Frontier drilling added over 80 MMboe per well, surpassing mature plays by more than 7 times, primarily in deep offshore areas. Deepwater projects enjoy high recovery per well and tend to have lower emissions intensity than shelf and onshore projects.
 
According to the report, deepwater will offer most new opportunities for exploration as most of the world’s deepwater basins, in waters from 400 m to over 3,000 m, are barely drilled.
 
"The majors have jumped on the bandwagon of deepwater exploration, eager to unlock the next frontier," said Latham. "They now hold nearly 70% of their net acreage in deepwater and dedicate a similar proportion of their exploration and appraisal spending to the sector.
 
"Increasingly, national oil companies are following suit, as government mandates to increase production and ensure domestic energy security prevail."
 
Within these untapped resources, there is still plenty of oil and gas to find. While the industry has been finding less in recent years compared with previous decades, that is down to drilling fewer wells, WoodMac said.
 
The global creaming curve reveals a near straight-line trajectory with a steady gradient of around 30 MMboe discovered per well, including the dry holes. It is a trend unchanged over the past 4 decades and more than 50,000 wells. An abrupt decline in such a long-established trend seems unlikely.
 
"Huge exploration opportunities still exist, but exploration does suffer from a serious image problem," said Latham. "The widespread perception that exploration is bad for the climate threatens everything from access to opportunity and the social licence to operate to talent attraction and retention. That misconceptions abound in this regard does not mean they will be easily overcome. Exploration has a role to play in decarbonising oil and gas supply."