Decreased drilling in 2017 yielded the lowest discovery rate since the 1950s. But there are still exploration opportunities that can lead to success. What does previous E&P activity tell us about the future of conventional exploration? Keith King has studied results from 2017- 2018 and shares his thoughts in this episode of Upstream in Perspective. Here's an excerpt from the podcast.

Jessica Nelson:

How is this downturn and the anticipated recovery different from previous cycles?

Keith King:

Well, it's quite different. In previous cycles, people more or less went back to doing what they were doing. If they were exploring in the Gulf of Mexico, they went back and they began again exploring the Gulf of Mexico after the price rebounded. If they were on the North Sea, they would go back to the North Sea. But this time there's a bit of a more of an investment dilemma, and that arises from the fact that there's competitive resource types. For example, the unconventionals. So, a company nowadays has a real dilemma on their hands in whether they should specialize in unconventional, or stay in the conventional world and go after the deepwater opportunities. In addition to that, the uncertainty over what the energy future's going to be in 10- 20 years. A lot of people are talking about peak demand. People are talking about renewable, solar, and wind replacing hydrocarbons. All of this leads to a lack of certainty. The lack of certainly leads to lack of investment. We're not seeing, despite the improvement in price, we're not seeing an improvement enthusiasm like we've seen in past cycles.

Jessica Nelson:

We've heard a lot about short-cycle projects. How will the focus on short-cycle projects, including North America unconventionals, affect operators' appetite for exploration as the industry recovers?

Keith King:

That's part of this investment dilemma aspect. It is because people aren't certain whether we're going to see the rise of renewables displacing conventional hydrocarbons. People are reluctant to get into long-term projects. They prefer a project that pays up quickly and starts cash flow quickly. There's also suspicion by some that the price is going to plummet again because of overproduction of the unconventionals. So, that means that people are looking at investments that pay out early and they're focused on those opportunities that they can establish infrastructure and facilities on early, and get early cash flow.

What geographies and which operators does Keith expect to drive the future of exploration? Listen to the full interview in Upstream in Perspective. Learn more about our coverage of key plays and basins around the world in our upstream insight offering.

Posted 27 July 2018

This is an excerpt from Upstream in Perspective and has been professionally transcribed as accurately as possible. Please note, some words and phrases may have been unintentionally excluded.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.