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Lack of discoveries pushes up oil and gas exploration costs

The Ceyhan oil terminal in Turkey. Turkish Petroleum made the country's biggest ever onshore oil discovery last year with the Sehit Aybuke Yalcin well BP Images
The Ceyhan oil terminal in Turkey. Turkish Petroleum made the country's biggest ever onshore oil discovery last year with the Sehit Aybuke Yalcin well
  • Discovered oil and gas falls 50% in 2023
  • Exploration investment at $60bn
  • Ultra-deepwater finds push up costs

Oil and gas exploration costs doubled last year as global discoveries fell to a record low.

The total volume of discovered gas and liquids dropped by more than 50 percent last year to around 5 billion barrels of oil equivalent (boe), according to the 2024 annual report by the Gas Exporting Countries Forum (GECF).

The Middle East accounted for 10 percent of the discovered oil and gas volumes last year, while Asia Pacific held the highest rank with a 32 percent share.



Turkey’s onshore discovery in the Sehit Aybuke Yalcin well and new fields offshore in Guyana were among the most important for liquid oil, the GECF report noted.

The marginal cost of findings for natural gas skyrocketed from $2.6 per boe in 2022 to $5.3 per boe in 2023, while oil rose from $3.5 per boe in 2022 to $8.8 per boe in 2023.

“This was driven by the disappointing results in some key offshore exploratory wells, despite the increase in exploration investment to $60 billion in 2023,” said the report.

High-value prospects were located in more challenging geographical locations, which increased costs, with offshore exploration, mainly ultra-deepwater, continuing to dominate discoveries.

“The industry has already picked the low-hanging fruit; the easily accessible reserves have already undergone extensive extraction, pushing them to the brink of depletion,” Vijay Valecha, Century Financial’s chief investment officer, tells AGBI

He adds that as onshore drilling produces low-value output, the industry is veering towards offshore drilling.

Valecha notes that offshore exploration relies on sophisticated seismic imaging, complex drilling techniques and remotely-operated equipment that is expensive to obtain and deploy.

“It also requires highly skilled personnel,” he says.

James Davis, London-based head of upstream oil at Facts Global Energy (FGE), says higher interest rates increased the cost of borrowing and the WACC (weighted average cost of capital) while pushing up the breakeven cost of production and reducing a project’s net present value. 

“Higher interest rates could see drilling service companies increase their fees due to their own cost of financing increasing.”

However, he adds, it is hard to separate activity-related cost increases from those associated with increased financing costs, as “higher interest rates have come at a time when activity levels have been rebounding post-Covid”.

Total investment in oil and gas recovered steadily during the last three years, although it has not yet returned to pre-pandemic levels, the GECF revealed.

Haitham Al Ghais, Opec’s secretary general, repeatedly warned that the lack of investment in new supplies would threaten global energy security. 

The organisation estimates in its latest World Oil Outlook 2045 report that the industry needs around $610 billion of investment annually. Out of $14 trillion needed by 2045, upstream needs $11 trillion.

Upstream investment reached $94 billion in the Middle East last year, compared with $214 billion in North America, where it was the highest.

In 2023, it grew 12 percent year on year to $587 billion globally; in 2024 it is expected to grow by 3 percent to reach $605 billion.

The Middle East should experience 18 percent growth.

The uncertainties regarding the long-term demand, due to the changes in environmental policies and regulations, and competition for capital with clean energy sources “may complicate efforts to secure investments over the long term,” warned the GECF. 

The UAE was among the countries with the most offshore activities last year, driven by the approval of the sour gas project Hail and Ghasha.

“Some regions might struggle to ramp up output, but the Mena region is expected to fare much better in comparison,” says Valecha.

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