Despite a global drop in exploration drilling in 2022, the oil and gas exploration sector saw its best year in over a decade with discoveries up along with greater quality prospects, creating $33 billion in value and full cycle returns of 22% based on $60/bbl Brent prices, according to Wood Mackenzie.
In its report, Oil and Gas Exploration: 2022 in Review, the international consultancy noted that while the industry drilled fewer exploration wells than it had before the start of the pandemic, the 20 billion BOE discovered in 2022 matched average annual results over the years 2013 to 2019.
Calling 2022 “a standout year for exploration,” Julie Wilson, director of global exploration research at Wood Mackenzie, said in a news release that “explorers were able to drive very high value through strategic selection and focus on the best and largest prospects.”
Wilson cited deepwater discoveries in Namibia and in the pre-salt exploration areas offshore Guyana and Brazil as having contributed the highest value to last year’s new finds, along with onshore discoveries in theAlgerian desert. “The average discovery last year was over 150 million BOE, more than double the average of the previous decade,” she said.
Exploration Value Created
The report noted that liquids made up 60% of new resources discovered, a phenomenon that has occurred only three times in the past 20 years. Given the “uncertainty in future long-term demand scenarios for oil,” Wilson said that “explorers are accelerating oil exploration to meet near and mid-term demand” and that companies are also trying to optimize value on leases that will soon expire.
“By 2030, fast-tracked development of these new discoveries could deliver 1 million B/D in oil and 0.5 million BOE/D of gas production, generating $15 billion in free cash flow,” she said.
TotalEnergies, QatarEnergy, and Petrobras lead in net-new discovered resources in 2022 with almost three quarters of new resources discovered by either a national oil company (NOC) or a global major. The study also pointed out that appraisal well drilling in 2022 was largely flat from 2021 in terms of numbers, and that inflation had driven drilling costs per well higher.
National Oil Companies, Majors Dominate 2022 Discoveries
In analyzing 2022 exploration activity from a different perspective, Norway-based Rystad Energy research had reported numbers of license blocks and total acreage at all-time lows as of the end of Q3 2022.
The 21 lease rounds completed globally through August represented half the 42 rounds that were held in the first 8 months of 2021. Acreage awards had hit a 20-year low of 320000 km2, and with only two more global lease rounds expected by year end, activity would be at its lowest level since 2000 for the year, Rystad noted in a September 2022 news release.
Oil and gas companies have spent less on exploration in recent years, limiting risk by focusing on core producing assets and regions with guaranteed output. Also, a growing trend among governments has been to pause or halt new leases in deference to net-zero policies.
“Global exploration activity has been on a downward trend in recent years,” Rystad’s Vice President of Analysis, Aatisha Mahajan, said. “It is clear that oil and gas companies are unwilling to take on the increased risk associated with new exploration or exploration in environmentally or politically sensitive areas.”
Onshore exploration cratered to 115000 km2 in the first 8 months of 2022 compared to a 2019 peak total that exceeded 560,000 km2. Offshore leased acreage has been flat over the past 2 years after having hit a highpoint also in 2019.
Concluded lease rounds dropped significantly in Russia, the US, and Australia in 2022: three in Russia and one each in the US and Australia—down from 17 rounds in the first 8 months of 2021 (eight in Russia, five in the US, and four in Australia).
Cancellation of Lease Sales 259 and 261 in the Gulf of Mexico and Cook Inlet in Alaska drove the drop in the US, according to Rystad analysts.
Not so in Asia and South America however.
New acreage awarded in Asia between January and August nearly quadrupled from the same period last year, with increased licensing by Malaysia, Indonesia, India, and Pakistan. In South America, the amount of awarded acreage surged by 140%, according to Rystad.
Brazil auctioned the largest number of blocks—59 in total—with Shell and TotalEnergies taking all eight offshore blocks on offer—six and two, respectively. The remaining 51 onshore blocks went to regional players. Norway came in second with 54 new licenses, followed by India with 29 blocks and Kazakhstan at 11 blocks. Egypt, Angola, and Uruguay saw single-digit activity, according to Rystad.
