Oil companies found only 3.7 billion barrels of so-called conventional crude in 2016, 14 percent less than the previous year and the lowest amount since 1952, according to updated figures from the Edinburgh-based consultant. The results for both 2016 and 2015 are better than forecast a few months ago, but still put discovered oil volumes at little more than a tenth of the yearly average since 1950.
Spending on exploration has been gutted since oil prices started falling in 2014 and may drop further this year, said Andrew Latham, Wood Mackenzie’s vice president for global exploration. However, by making operations more efficient, focusing on easier targets and paying lower fees to contractors oil companies are getting more for their money. Coupled with renewed industry optimism sparked by an OPEC-led deal to curb output and boost prices, that could mean exploration results won’t get any worse, he said.
“We’ll probably see 2016 as the turning point, the low point,” Latham said. “There will be a lag of at least a year, but we do think that investment will start to grow again and volumes will come back.”
Oil companies reduced spending on exploration to about $40 billion last year from $100 billion in 2014, and could invest as little as $35 billion this year, Latham predicted. Lower budgets meant fewer wells drilled: 431 in 2016, or about a third of the activity two years earlier. This year, cost savings mean more wells could be drilled for less money.
Explorers are now passing on the most difficult wells in very deep reservoirs or in harsh environments such as the Arctic. They’ve also lowered the drilling duration of a typical offshore well to 55 days from 75 days, Latham said. Among the 40 leading exploration companies Wood Mackenzie tracks, net spending per well could fall to $40 million from $86 million in 2014, he said.
Total expenditure on exploration could rise to $40 billion to $45 billion in 2018 and further in 2019 if the oil price recovery endures, Latham said.
Even as more exploration yields additional discoveries in the years ahead, the recent dismal results will have an effect on global oil supplies in five to 10 years, Latham said. If exploration remained at current levels, the world could see a supply shortfall of 4.5 million barrels a day by 2035, Wood Mackenzie estimates.