Oil and gas majors need to keep exploring for new discoveries rather than simply squeezing more barrels out of existing fields, Wood Mackenzie analysts Andrew Latham and Simran Bandal said in a new report.

“Exploration is suffering from a chronic perception problem,” they said. “Investment has plummeted by two-thirds in a decade.”

The investment decline has occurred because “public opinion is negative, which spooks investors, while some governments are curtailing exploration licensing,” they said. Also, existing fields and discovered resources could satisfy future oil and gas demand for the foreseeable future.

Even so, they said, “Demand is proving resilient and investment in new supply is needed.”

And the case for exploration is clear: It reduces costs to consumers, it cuts carbon intensity and it adds value for resource holders and explorers.

The report found:

  • New fields can reduce costs: Finding oil is cheaper than buying it. Over the past five years, the breakeven price for exploration is $45/bbl versus $65 via M&A.
  • Exploration can cut Scope 1 and Scope 2 carbon intensity, which are part of company operations: “New fields are cleaner, thanks to modern decarbonization technologies and higher facilities throughput. Retrofitting old fields is expensive.”
  • New fields add value: “First movers and fast followers into new basins and plays capture most of the value.”

Latham and Bandal said they believe there is plenty of oil and gas left to find, especially in deepwater plays. They note that the volume of oil per well drilled has barely changed in four decades; that new plays have emerged about every 18 months since 2000; and that explorers have barely begun drilling most of the world’s deepwater basins.

“High-impact and deepwater exploration is not for everyone,” they said. Success requires “strategy, technical excellence, appetite for risk, company culture, process and—critically—access to capital. Companies with all these strengths should use them.”

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