21.May .2020 14:25

Exploration will bear some of deepest cuts in percentage terms, says WoodMac

Exploration will bear some of deepest cuts in percentage terms, says WoodMac
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Exploration will bear some of the deepest cuts in percentage terms, although these are generally less severe than spending reductions onshore Lower 48, Trend reports citing Wood Mackenzie research and consulting company.

This reflects the greater flexibility of unconventional plays and the sector’s ability to react in the short term. Explorers are being forced to choose and are prioritizing their highest-quality plays, such as deepwater offshore Guyana and Suriname, said the company.

“At $30 per barrel, the oil majors and national oil companies (NOCs) have had no choice but to re-assess exploration spend in 2020 – most have already released updated and reduced capex guidance for the year. Smaller companies have generally suffered the sharpest stock price falls and were quickest to announce savings. Important themes are emerging. For those still able to explore, high-impact and low-breakeven prospects are king. Routine near-field opportunities can wait,” Wood Mackenzie said in its report.

The report shows that across the industry, conventional exploration spend had been set at around less than 10 percent of 2020 upstream capex. “The capex cuts that matter in absolute terms must fall elsewhere in development budgets.”

Governments around the world have announced various measures aimed at helping exploration.

“This pragmatism is encouraging for the exploration sector. The industry still wants and needs to drill wildcats but with budgets heavily cut, and with a myriad of operational difficulties arising from the Covid-19 pandemic, easing of fiscal terms and greater flexibility with regard to commitments can only help. As ever, the devil will be in the detail, and some of the changes need to be better defined. But, crucially, countries are addressing the need to compete globally for exploration investment and help a sector that will be key to upstream recovery post-pandemic,” said Wood Mackenzie.

What’s harder to predict is the impact of coronavirus on the long-term fundamentals of global exploration, according to the company.

“This will depend on the duration of the pandemic, the depth and duration of the inevitable global recession that follows, and whether coronavirus accelerates the transition to renewable energy.”