Transition Pushes Majors Toward Selective Exploration

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Western oil majors’ exploration budgets are a fraction of what they were a decade ago, as transition goals take precedence over finding more hydrocarbons. But as demand for oil and gas continues to rise, tie-back opportunities and new exploration hotspots offering advantaged barrels — most of them offshore — still command attention. Energy Intelligence looks at the exploration strategies of the five leading Western majors.

  • BP has pulled back on exploration but has a big year ahead.

BP’s approach to exploration has changed dramatically over the last decade and now reflects a company that sees its oil and gas production declining by at least 1 million barrels of oil equivalent per day, from 2019 levels, by 2030, to meet transition targets. “We're not investing for growth … We’re not exploring in new basins,” CEO Bernard Looney said on a conference call last year. Once one of the world’s most active wildcatters, BP has cut back and took a $9.9 billion write-down on its exploration and appraisal portfolio in 2020 that reflects its transition-focused strategy. “We continue to selectively explore, aiming to further enhance the portfolio,” Looney said.

In place of rank exploration, BP has emphasized re-exploration of its existing assets. In 2019, it said a new seismic processing algorithm had revealed another 1 billion bbl of oil in its Thunderhorse field in the US Gulf of Mexico.

Nevertheless, the company has notched discoveries in existing focus areas like Egypt, Canada, Trinidad, Brazil and the US Gulf of Mexico. In May, BP will spud its Ephesus well offshore Canada after a multi-year delay. With estimates as high as 5 billion bbl of oil in place, it is one of the most closely watched exploration efforts this year.

  • Chevron is focusing on a smaller pool of targets.

Like BP and its peers, Chevron is also following the wider trend of investing less in exploration, focusing on a smaller pool of targets and favoring deepwater. The US major spent nearly $720 million on exploration in 2021, down from a peak of $3.3 billion as recently as 2015, and barely half its nearly $1.4 billion pre-pandemic spend in 2019. “We are still maintaining an active exploration program,” Chevron’s then-upstream head, Jay Johnson, said last March. “We have scaled it back and been very disciplined about it, just like we have the capital going into our base and development programs.”

Egypt and the US Gulf of Mexico top Chevron’s exploration priority list, with Brazil, Suriname and the Mexican side of the Gulf of Mexico also flagged as key exploration ventures. Just this month, Chevron reported a “significant” gas discovery at its Nargis-1 exploration well offshore Egypt, which industry sources suggested could contain 3.5 trillion cubic feet of gas. In the US Gulf, Chevron has been less active than BP and Shell, preferring a “drill to fill" approach over pursuing all-out growth. Results outside its two core areas have been underwhelming.

  • For Exxon Mobil, it’s all about Guyana — but exploration is not enough.

Exxon’s exploration activities over the past decade have focused almost exclusively on Guyana. The Stabroek Block offshore the South American country, where it partners Hess and China's CNOOC, offers barrels with low emissions intensity and is the envy of the global deepwater industry. For Exxon, it is the gift that keeps on giving: the company has made more than 30 discoveries on the block since 2015, is drilling at a 10-well per year clip and sees potential for estimated recoverable resources to almost double to 20 billion boe.

Guyana aside, it is hard to identify a clear-cut exploration strategy in Exxon’s portfolio. The company recently surprised industry observers by picking up two exploration blocks offshore Egypt, where it has not been particularly active. Another country to watch is Canada, where the US major has hired a rig to drill from the second quarter, likely in the Jeanne d’Arc Basin off Newfoundland and Labrador, and picked up separate acreage with partner QatarEnergy.

Exxon’s upstream president, Liam Mallon, told the Energy Intelligence Forum last year that exploration “is highly valued, and remains a core piece of our strategy” but won’t be sufficient to meet the company’s growth targets, given depletion rates, meaning the door to inorganic resource additions is wide open.

  • Shell is devoting most funds to eight core areas.

“Exploration” is a term that has rarely cropped up on Shell earnings calls over the past year and the company's exploration spending has been on the decline since 2019. Nonetheless, the UK-based supermajor has earmarked a healthy $1.5 billion of annual capex for exploration from 2021-25 -- and more than 80% of that will focus on eight core positions. Having divested its Permian Basin portfolio in 2021, these are now Brazil, Nigeria, US Gulf of Mexico, UK North Sea, Oman, Brunei, Malaysia and Kazakhstan.

The spending will carry an emphasis on deepwater, which Shell considers to be one of its strengths. Deepwater is also the name of the game for some of Shell’s most exciting exploration opportunities in the South Atlantic, such as Namibia and Sao Tome. Following its Graff-1 deepwater discovery offshore Namibia last year, Shell has recently been drilling the Jonker well to check for a possible eastern extension of TotalEnergies’ Venus find and is reported to have again struck hydrocarbons.

Shell drilled a total of six frontier wells last year — in Namibia, Sao Tome, Suriname and Brazil. It plans to derisk its current frontier positions by 2025 and thereafter does not anticipate entering any new exploration frontiers.

  • TotalEnergies looks to do more with less.

Total guided for exploration spending of $500 million last year, or around 3% of its overall annual capex budget and less than one-third of its exploration capex in 2019. “Maybe we are leaner in our exploration plan … but we are also more efficient,” Nicolas Terraz, the company’s president of exploration and production, told an investor day last fall.

The company was working to appraise its discoveries alongside APA Corp. in Block 58 offshore Suriname, in the same basin as Exxon’s Guyana finds, by the end of last year, in order to identify sufficient resources to proceed with a first oil development there. It also took exploration acreage offshore Brazil.

Like Shell, Total is finding Namibia to be a happy hunting ground. Terraz acknowledged “a lot of excitement” around the company’s Venus find in the Orange Basin, where it partners QatarEnergy, Impact Oil and Gas, and Namcor. “I will wait to see the appraisal coming in order to be able to speak about it, but it seems to be quite a very large discovery, or a giant one even,” he said.

The French major is also chasing gas in the East Mediterranean, where its recent Zeus discovery continues a string of exploration successes that it is looking to extend with a closely watched wildcat on Lebanon’s newly delineated Block 9.

Exploration, Corporate Strategy , Capital Spending, Offshore Oil and Gas, Conventional Oil and Gas, Upstream Projects, Majors
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