Oil And Gas Exploration In 2021 Resilient Regardless Of Pandemic

Oil and gas exploration in 2021 was remarkably resilient despite the Covid-19 pandemic and accelerating energy transition, according to Westwood Global Energy Group.

The high impact well count was maintained year on year, but performance dropped significantly both in terms of discovered resources and success rates.

Exploration drilling levels were maintained in 2021 but with poorer performance. Namely, 79 high-impact wells were completed in 2021 compared to 78 in 2020. Discovered resources, however, dropped 65 percent in 2021 to 6.7 billion boe. Excluding Russia, discovered resources fell 54 percent to 3.5 billion boe.

The commercial success rate fell 11 percentage points from 40 percent in 2020 to 29 percent in 2021. Except for 2019 when 98 wells were drilled, the number of high-impact wells completed annually since 2016 has been maintained between 67 and 79 despite significant variations in the oil price.

Exploration is increasingly dominated by supermajors and NOCs. Together they accounted for 68 percent of high-impact well equity in 2021 compared to 47 percent in 2018. There is an opportunity for smaller companies to participate in high-impact exploration activities, but funding for developments in the success case may be a challenge.

Frontier drilling still has a role to play and is likely to see a short-lived bounce back from a 14-year low ebb in 2021. Only 16 frontier wells were drilled in 2021 with just one minor success whilst three frontier successes have been made already in 2022, including the opening of a potentially major new oil province in the Orange basin.

Whilst significant frontier discoveries can be made, success rates have been less than 10 percent for many years and the follow-on volumes have been small, with one or two exceptions. There is still an appetite for exploration of new plays, particularly those that can be commercialized quickly, but the pool of active frontier drillers has shrunk from 52 in 2019 to 24 in 2021.

Companies with a focus on infrastructure-led exploration delivered more consistent performance, with higher commercial success rates, averaging 47 percent but much smaller average discovery sizes of 28 million boe. Exploration successes that can be brought on stream quickly remain attractive as companies seek payback before demanding hydrocarbons declines.

Underpinning all future exploration activity is a requirement for low emissions intensity developments. Prospects will be chosen for drilling based not just on volumes and chance of success but increasingly on time to break even and the success case impact on company net zero targets.

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