Woodmac sees exploration upturn on the horizon.

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Wood Mackenzie expects global oil and gas exploration spending to remain flat in 2017 and is forecasting recovering oil prices to rise sharply from 2019.
The good news from the Wood Mackenzie study is that exploration should “return to profitability in 2017 after five years of only single-digit returns.”
Andrew Latham, vice president of exploration at Wood Mackenzie 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 company said it expects exploration to continue transforming to a smaller, more efficient industry and that investment, on the upside, will match the 2016 spend of $40 billion, but could fall further.
Woodmac believes lower costs means that well counts are likely to be close to 2016 numbers and flat budgets meant headcount cuts are probably over, for now.
While the majors and a few independents are likely to drill most of the wells, Woodmac said the best discoveries will likely emerge from 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,” Dr Latham said.
The report said exploration cuts had been slashed more than other upstream spending and the share of upstream investment would likely hit a new low of about 8% next year. The price of oil would dictate whether spending returned to historic norms of around one dollar in seven.
From 2019 onwards, Woodmac is forecasting that Brent will average $77 per barrel, a scenario that will spur exploration spending within a short time thereafter.
“The industry is focusing on acreage capture and re-loading for the longer term. 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,” Dr Latham said.
The company is bearish on high cost-frontiers, such as the ice-impacted offshore Arctic and high pressure cum high temperature plays.
“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,” Dr Latham added.

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