Projections by Wood Mackenzie show that oil and gas exploration spending will recover from recent historic lows, with deepwater and ultra-deepwater areas of Africa and the eastern Mediterranean offering the most opportunity for growth
Although the forecast does not expect spending to return to the dizzying heights of the most recent boom in 2006-2014, which peaked at US$79Bn in real terms, Wood Mackenzie’s report Exploration quietly recovering, says attractive exploration economics, pressing energy security concerns and newly emerging prospects will work in tandem to lure national oil companies and oil majors back to exploration and production.
“Explorers will become bolder in the coming years,” Wood Mackenzie director of global exploration research Julie Wilson said.
“While this rebound might surprise some, it must be seen in context," she said. "Spending will increase, [but] 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 projection for growth is immediate, with 2023 set to see a mild uptick, in the single digits (around 7%) over pandemic-era lows.
Among the factors driving momentum in exploration are returns on investment and production that have averaged more than 10% since 2018 and surpassed 20% in 2022.
In the long term, Wood Mackenzie expects deepwater and ultra-deepwater to provide the most growth opportunities for exploration, predicting that Africa and the eastern Mediterranean regions will experience the greatest growth, with additional spend in "some 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,” Ms Wilson said.
Offshore South America, Canadian operator Frontera Energy and subsidiary CGX Energy are set to complete an analysis of Guyana’s Wei-1 oil well over the coming months before taking a decision to upgrade an exploration licence to its development phase.
Wei-1 is one of two wells on the Corentyne block that the companies had committed to drill in Guyana. The consortium discovered oil at the well earlier this year when the Noble Corp semi-submersible Discoverer encountered 64 m of hydrocarbon-bearing sands. Frontera’s previous well, Kawa-1, struck light oil and gas condensate in May last year.
ExxonMobil currently leads a consortium in the South American nation developing deepwater oil and gas fields, where production is expected to reach 1.2M barrels per day by 2027.
In contract news, a profitable second quarter saw offshore driller Seadrill report multiple extensions for its floater fleet. The company’s order backlog stood at US$2.6Bn at the end of the quarter, with approximately US$203M of contract additions.
Seadrill’s Angola-based drillships Sonangol Quenguela and West Gemini have had their existing contracts extended through January and May 2025 with their corresponding dayrates rising to US$310,500 (up from US$214,500) and US$404,800 (from US$284,800), respectively. Both units work for TotalEnergies through a joint venture with Sonangol.
An unnamed client operating drillship West Capella has exercised a one-well option, extending its operations by approximately two months. Seadrill said the drillship is part of an exploration programme offshore Indonesia in 2023-24.
And Seadrill jack-ups West Castor and West Tucana have had their terms extended for operations offshore Qatar through Seadrill’s joint venture with Gulf Drilling International. Seadrill’s latest fleet report does not disclose the day rates for Capella, Castor or Tucana.
Operator Diamond Offshore has seen options exercised on some of its vessels, as well. In Senegal, Australian petroleum major Woodside Energy has opted to keep the 2014-built drillship Ocean BlackRhino offshore Senegal until June 2024. Ocean BlackRhino is working on the Sangomar development – Senegal’s first oil project. Woodside, which has contracted the rig since July 2021, exercised the well options for an estimated duration of 60 days.
Borr Drilling has won a pair of contract extensions for its Norve and Prospector 1 jack-up drilling rigs. Norve will continue its work offshore Gabon with BW Energy. The rig has been in work for the operator since 2022, and the extension runs from November 2023 to January 2024, with options remaining for further extension.
Prospector 1 will continue its work with Neptune Energy in the North Sea in September and October 2023. The rig has been with the operator in the region since 2022, and Borr Drilling said the short-term extension offers a "bridge towards favourable long-term commitments elsewhere", noting the "lower day rate levels than the rest of the world" in the North Sea.
Diamond’s Ocean Apex is completing its special periodic survey at Singapore’s Seatrium shipyard ahead of its deployment to Australia to begin work for Woodside in Q3 2023. In Q4 2023, Ocean Apex will work for Chevron before another deal with Inpex kicks off in Q1 2024. And then, in Q3 2024, the rig will begin a contract with Santos, which is expected to last until Q2 2025.
In the UK, BP exercised an optioned well to be drilled by Diamond Offshore’s Ocean GreatWhite. The deal adds about 60 days to the semi-submersible’s work scope, extending its current contract until April 2024. BP exercised an initial option on a well earlier this year. The operator has seven options remaining on the drilling contract with an estimated duration of 60 days each.
John Frederiksen-controlled SFL Corp signed a drilling contract in Canada with an Equinor subsidiary for the harsh environment semi-submersible rig Hercules. The estimated contract value is approximately US$100M.
The contract is for one well plus one optional well, and is expected to commence in Q2 2024. The duration for the firm contract period is approximately 200 days including transit to and from Canada. Odfjell Drilling will manage the rig on behalf of SFL under the contract.
With this contract, SFL has approximately US$200M of revenue backlog on Hercules. The semi-sub unit is currently drilling for ExxonMobil in Canada before it will transit to Namibia for a contract with Galp Energia that is expected to commence in Q4. Another SFL vessel, the jack-up rig Linus, is currently on charter with ConocoPhillips until Q4 2028.
Last month, Odfjell Drilling tied up two contracts for its semi-submersible Deepsea Atlantic to conduct operations in the North Sea region for Equinor. The contracts will keep Deepsea Atlantic engaged until mid-2026, with options that extend to 2029.
ExxonMobil Exploration and Production Malaysia has awarded a two-year contract to Velesto Workover for the Gait 6 hydraulic workover unit. Gait 6 will provide services during Exxon’s workover and plug and abandonment programme for 2023/24. Work is expected to begin in Q3 2023. Velesto Drilling’s jack-up Naga 2 will also work for Singapore’s Jadestone Energy as part of the East Belumut field infill drilling programme. The contract is for four firm wells with an estimated commencement date in Q3 this year.
And finally, BP awarded Total Waste Management Alliance Ltd (TWMA) a contract to provide drilling waste services for a large-scale oil and gas project in Egypt. TWMA will utilise its RotoMill drill cuttings processing technology to process all drilling waste generated from BP’s WND & END exploration and development project in the Mediterranean Sea. The RotoMill uses a process of thermal desorption to separate drill cuttings and associated materials into their three constituent parts: oil, water and solids, for recycling and reuse.
The contract is worth US$15M and expected to last up to five years with work commencing this October.
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