Illustration; Source: Westwood

Namibia’s discoveries seen as silver lining: Global drilling costs up but exploration success rate down

As the energy landscape continues to shift, the energy transition demands are growing, thus, fossil fuel players are evolving to meet decarbonization targets. The search for more oil and gas continues to bolster the security of the energy supply, however, high-impact exploration average discovery size is declining while finding costs have risen for the fifth consecutive year, according to Westwood Global Energy, an energy market research and consultancy firm.

Illustration; Source: Westwood

Based on Westwood’s latest analysis, high-impact exploration drilling in 2023 declined by 21%, driven by energy transition strategies, industry consolidation, rising well costs, and reduced activity in former hotspots, despite favorable oil prices during 2022. The commercial success rate is down 7% compared to the previous year, which is the lowest since 2018.

With fewer giant discoveries greater than 500 mmboe, there is a year-on-year decline in the average discovery size, down from nearly 500 mmboe in 2019 to around 220 mmboe in 2023, which the energy market research player deems to be the smallest since 2014. The issue is compounded further by the increase in overall drilling finding costs, which have become six times higher since 2019 to $1.2/boe. The commercial success rate in frontier plays returned to the long-term average of above 10%.

Westwoood’s findings also highlight a decrease in the number of companies participating in high-impact drilling, as this is down from 99 in 2019 to 68 in 2023, with supermajors and NOCs continuing to account for the majority of high-impact well equity, at about 60% between 2019-2023, and spearheading both discovered resource and commercial success rate.

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Graeme Bagley, Head of Global Exploration and Appraisal at Westwood, commented: “The relationship between exploration drilling and the previous year’s oil price has broken. High oil prices previously led to high levels of exploration drilling.

“The appetite for exploration is still there but energy transition strategies are having a significant impact on the way the companies choose to replenish their reserves base, with industry consolidation and new technologies also having apart to play.”

While these results do not seem encouraging, the energy market research and consultancy player points out that there is still cause for optimism, as recent discoveries in Namibia’s Orange basin demonstrate the existence of significant volumes of hydrocarbons that are yet to be found.

Another positive trend is the continued reduction in cycle times, with oil discoveries achieving first production a year faster than gas discoveries on average.

Source: Westwood