Dr. Andrew Latham, the analyst’s VP of exploration, said: "The industry has a good chance of achieving double-digit returns in 2017. Smarter portfolio choices and lower costs are already paying off."
The report identified a number of trends, including:
- Exploration in 2017 will undergo a continued transformation to a smaller, more efficient sector;
- Overall investment will at best match 2016 year’s outlay of around $40 billion, or decline further. However, lower costs suggest that well counts will be similar to 2016 numbers, while flat budgets indicate that further major headcount cuts are unlikely;
- Majors and some independents will drill most of the wells to watch, and Wood Mackenzie expects the best discoveries to come from new plays and frontiers, despite greater emphasis on infrastructure-led drilling;
- More than half of the new volumes will likely be found in deepwater. Here, some well costs will fall to $30 million or below, with full-cycle economics that are positive at less than $50/bbl.
The report reveals that the industry has cut exploration more sharply than other upstream spending, and that exploration’s share of upstream investment will dip to a new low of just 8% in 2017. An eventual return to historic norms – around one dollar in seven – will depend on the oil price recovering.
Wood Mackenzie expects the Brent price to rise sharply from 2019 onwards, averaging $77/bbl in real terms for the year, followed by a recovery in exploration spend a year or two later.
"The industry is focusing on acreage capture and re-loading for the longer term," said Latham. "Companies willing to sign acreage with firm 2017 wells may be spoilt for choice.
“A spate of new licensing in outer slope plays will continue as explorers digest news of better-than-expected reservoir quality and source rock potential in these ultra-deepwater settings."
Other emerging exploration themes for 2017 detailed in the report include:
- a de-emphasis on over-supplied LNG plays;
- high-cost frontiers, such as the ice-impacted offshore Arctic and extreme high pressure/high temperature plays, will be shunned.