Rystad Energy: Big spending on oil and gas exploration has yet to pay off

Daniel J. Graeber
·2 min read
Energy companies are investing heavily in the search for new reserves of oil and natural gas, but so far have little to show for their efforts, a report from Norwegian consultant group Rystad Energy found. File Photo by Stephen Shaver/UPI
Energy companies are investing heavily in the search for new reserves of oil and natural gas, but so far have little to show for their efforts, a report from Norwegian consultant group Rystad Energy found. File Photo by Stephen Shaver/UPI

Aug. 1 (UPI) -- Though spending on oil and gas exploration is on pace to surpass pre-pandemic levels, Norwegian consultant group Rystad Energy said Tuesday that actual discoveries have so far been fleeting.

Rystad found that the six global energy majors -- BP, Chevron, Eni, Shell and TotalEnergies -- committed to around $7 billion to exploration this year, some 10% higher than year-ago levels.

Amid lingering concerns about a supply-side shortage emerging in large part because of production restraint from Saudi Arabia, Rystad believes that spending will lead to an acceleration in activity in the upstream sector, the exploration and production side of the industry.

"Our forecasts show that the majors will contribute about 14% of total global exploration spending in the coming months, highlighting their relative significance in an environment where exploration has pivoted to the offshore sector, with an increased focus on frontier regions," their report read.

That focus, however, has not been met with a corresponding uptick in discoveries. Rystad estimates upstream activity has yielded 2.6 billion barrels of oil equivalent reserves during the first half of the year, 42% lower than levels during the same period last year.

A cautious approach during a period of transition suggests oil and gas companies aren't seeing the returns they may have otherwise expected in terms of new discoveries. File Photo by Stephen Shaver/UPI
A cautious approach during a period of transition suggests oil and gas companies aren't seeing the returns they may have otherwise expected in terms of new discoveries. File Photo by Stephen Shaver/UPI

Reports for the second quarter show firms buckled under the low-price scenario that prevailed early this year. Legacy assets from the likes of Shell aren't expected to move much beyond early-year levels.

In terms of new developments, Rystad said there were 55 such discoveries during the first half of the year, compared to 80 over the same period in 2022.

"If exploration efforts continue to yield unimpressive results for the remainder of the year, 2023 could be a record-breaker for the wrong reasons," said Aatisha Mahajan, a vice president for upstream research at Rystad.

Most of the exploration efforts have targeted deepwater offshore reserves, though companies so far have little to show for their efforts. Rystad offered little explanation for the downturn other than to suggest capital discipline may be in part to blame.

"The exploration and production industry is in a transitionary period, with many companies exercising increased caution and shifting their strategies to target more profitable and geologically better-understood regions," it said. "This strategic shift and the failure of several critical high-potential wells are contributing to the precipitous drop (in new discoveries)."