Players will still be searching for hydrocarbons in five years’ time although the focus in 2026 will increasingly be on so-called ‘resilient’ or ‘advantaged’ exploration as the energy transition gains momentum, according to consultants Westwood Global Energy.

“What we’re talking about is delivering low-cost, short-cycle, zero-emissions barrels - that is zero upstream emissions barrels - to meet future demand,” Westwood’s president research, Keith Myers, said in a webinar on Wednesday.

He says that there will be a drive towards prospects that can be exploited within five years and achieve payback within a decade. These ‘resilient’ projects will also require full-cycle breakeven costs of less than $40 per barrel and to be producible with net zero upstream emissions.

ENERGY EXPLORED: SUBSCRIBE TO ACCELERATE

Gain valuable insight into the global oil and gas industry's energy transition from ACCELERATE, the free weekly newsletter from Upstream and Recharge. Sign up here today.

More and more companies are committing to net zero, at least Scope 1 and 2 and some are committing to 1, 2 and 3, so prospective developments will need to at least meet Scope 1 and 2 criteria, say the consultants.

“Some companies are… testing prospects at $100 per tonne carbon price [although] some forecasters think that the carbon price will need to be a lot higher than that to facilitate the energy transition,” says Myers.

He reckons $40 per barrel “feels like a reasonable long-term oil price floor” – crude averaged $42 per barrel last year despite the coronavirus pandemic – “[although] I’m not discounting the possibility of a medium-term supply crunch and price spike”.

“But if we are on track with one and a half or two degrees [Celsius] of warming, then $40 feels like a reasonable number.

Attractive returns at $40 per barrel

“That means we need full-cycle breakeven prices well less than $40 a barrel and attractive returns at $40.”

While oil price forecasting will play a key role in future exploration campaigns, with operators having to anticipate prices well into the potential production phase, hydrocarbons with a low-carbon footprint could attract a premium, he says.

Operators increasingly will be exploring for oil rather than gas over the next five years - there are already many undeveloped stranded gas assets worldwide and oil is typically faster to bring to market.

Myers adds that there should be plenty of potential demand for production from discoveries made in 2026 given forecasts of a significant supply shortfall even under an energy transition on track for less than 2 degrees Celsius of warming.

In the shorter term, Westwood sees Latin and Central America accounting for around half of the 170 or so high impact exploration wells being drilled between 2021 and 2023, with a focus on the Suriname-Guyana basin, Gulf of Mexico and Brazil.

Africa, Europe, Southeast Asia, Middle East and North America will also see their share of high impact wildcatting, with limited visibility on the activity that will take place in China and the Commonwealth of Independent States.

Of the approximate 170 high impact exploration wells through 2023, 37% are expected to be drilled in frontier areas and 28% in emerging areas.

Even this year, explorers will be chasing oil rather than gas with just 17% of this year’s high impact wildcats targeting gas or gas condensate structures, notes Westwood.

Also, the historic trend towards a growing percentage of infrastructure-led exploration (ILX) is set to continue, according to the consultants. ILX accounted for 33% of exploration spending from 2010 to 2014, increasing to 41% from 2016 to 2020.

Better prospects

Even though fewer exploration wells might be sunk in the coming years, history has shown that more drilling does not necessarily translate to greater success. Myers points out that success rates actually increased after the 2015 oil price crash as lower prices and reduced budgets forced explorers to focus on better prospects.