The oil and gas industry likely won’t spend more on exploration next year than it did this year, according to a report released Friday by the energy research firm Wood Mackenzie. Still, thanks to lower costs and increased efficiency, the business is poised to return to profitability.
The two-year oil price downturn has transformed the industry, the report says, making it smaller and companies leaner.
Exploration investment next year may not crest this year’s $40 billion, and may fall further. The number of wells drilled will likely stagnate. Layoffs, however, are now mainly in the past, WoodMac said.
The major oil companies — Exxon, Chevron, and others — and a few “bolder” independent oil producers will drill “most of the wells to watch,” WoodMac said. The best discoveries will come from new frontiers, despite many companies’ recent emphasis on existing oilfields.
More than half of the year’s oil and gas production will come from deep water, Andrew Latham, the firm’s vice president of exploration, said in a statement. Well costs may fall under $30 million, making drilling economical even if oil stays at roughly $50 per barrel.
“The industry is focusing on acreage capture and re-loading for the longer term,” Latham said.
Companies will look for under-supplied markets in 2017, the report says, and avoid “over-supplied” Liquified Natural Gas projects and high-cost frontiers, such as offshore Arctic.
Conventional exploration by the major oil companies improved to nearly 10 percent last year, WoodMac said. “The rest of the industry is heading in the same direction,” Latham said. “Fewer, better wells promise a brighter future for explorers.”