➡️Recent discoveries in Guyana and Namibia have reignited interest in deepwater oil exploration, offering high returns for major oil companies.
➡️Despite forecasts of peak oil demand, Big Oil is investing heavily in deepwater exploration, particularly in Africa, to secure future resources.
➡️The deepwater oil boom is driven by investor appetite for high returns and the need for Big Oil to ensure long-term business sustainability
By Tsvetana Paraskova |OilPrice.com|Deepwater oil exploration has garnered growing attention this year amid reports of successful—and sizable—discoveries offshore Namibia and Guyana. This might be only the beginning of a new trend in oil exploration because the world will continue needing lots of oil for decades to come.
“New discoveries can play an important role in the future, delivering affordable energy and bolstering energy security,” Wood Mackenzie analysts pointed out in a recent review of the deepwater exploration sector. They noted the negative campaigning around the oil industry as a whole and its effect on some investors, emphasizing that this has not been enough to deter offshore exploration, but it has substantially reduced explorers’ appetite for such exploration.
Only Big Oil and state-owned oil and gas companies are currently active in the deepwater exploration game, but the prize is worth it: hundreds of billions of dollars in oil and gas resources to be extracted from water depths of up to—and even over—2,000 meters. Big Oil is in ultra-deepwater territory now and making double-digit returns.
According to Wood Mackenzie data, since 2015, Big Oil has created more than $160 billion in new value from new field discoveries based on a long-term price for Brent crude of a conservative $65 per barrel. Since that year, returns on a full-cycle basis have consistently exceeded 10%, with the average calculated at 15%. A bad reputation is one thing, but investors like the sound of double-digit returns. The oil industry may be in for a deepwater revival.
“It would be no surprise if some companies that have wound down high-impact exploration exposure in recent years and are now looking to rejuvenate their upstream portfolios look to get back in,” Wood Mac’s analysts noted that exploration was cheaper than buying assets to grow.
It all began with Exxon and Guyana. The Big Oil major had the means and technology to drill in unexplored waters. That was a dozen discoveries and over 11 billion barrels in unlocked resources ago. Currently, Guyana is on its way to becoming a top oil producer in South America, with output set to hit 1.3 million barrels daily in 2037. Total production in the tiny country since Exxon first hit oil has reached 500 million barrels—and it only took five years.
Other Big Oil majors are currently on track to repeat Exxon’s success in Guyana offshore Western Africa, in the Orange Basin offshore Namibia. Shell, TotalEnergies, and Portugal’s Galp have announced discoveries that could hold billions of barrels of oil that could turn the country into the fifth-largest oil producer in Africa. One of the discoveries, Galp’s Mopane, alone could hold in excess of 10 billion barrels of crude.
It’s worth noting that these discoveries are being made even as forecasts about future energy demand from presumably reputable outlets such as the International Energy Agency repeatedly predict a peak in oil demand growth and a consequent drop as electrification accelerates. It seems, however, that this acceleration is more of an ambition than an actual development, which motivates continued exploration in deep waters.
Indeed, earlier in the year, Rystad Energy said that the current decade will go down in history as the decade of deepwater offshore exploration and production. The consultancy said it expected investments in deepwater oil exploration to hit $104 billion this year and continue growing in the coming years. Wood Mac, in an earlier report, said it expected offshore oil production to surge by 60% between now and 2030. Deepwater oil seems to be the new shale as growth in the U.S. shale patch slows down amid natural reservoir depletion.
Big Oil is already spreading its exploration wings in Africa, per Wood Mac. The discoveries offshore Namibia seem to have whet the majors’ appetite, so they are now expanding their exploration activities to South Africa, which shares the Orange Basin with Namibia. TotalEnergies recently said it planned to drill seven wells in the area. Yet the supermajors are exploring elsewhere as well.
Italy’s Eni recently acquired four new offshore blocks in Cote D’Ivoire as part of a large-scale project that is supposed to be the first net-zero offshore oil development ever. TotalEnergies again earlier in the year received an offshore exploration license for an offshore block in Sao Tome and Principe – an island off the western coast of Africa close to OPEC member Equatorial Guinea. Liberia has also joined the ranks of prospective future oil producers with a licensing round for as many as 29 blocks earlier this year. The country was named one of Africa’s top seven destinations for deepwater discoveries by the African Energy Council.
Offshore oil is once again hot. It may not be hot in the minds of climate activists using petroleum derivatives to make a political point, but it is certainly hot in the minds of investors set to benefit from Big Oil’s corporate policies that prioritize shareholder returns and fiscal discipline—and ensuring long-term business sustainability with new large offshore discoveries.
Discoveries by ExxonMobil – From Wikipedia
Esso, a subsidiary of ExxonMobil, began exploring the off-shore region in 2008. In May 2015 ExxonMobil announced the discovery of more than 90 metres of high-quality, oil-bearing sandstone reservoirs about 200 km off the coastline,[10] considered to be one of the largest crude oil discoveries of the past decade.[11] The Liza-1 well was drilled to 5,433 metres in 1,742 metres of water, and was the first well on the Stabroek block, which is 26,800 square kilometres in size. Early estimates claimed the area contained 700 million barrels of oil (a total value of US$40 billion, international crude price at the time of discovery).
As of March 2024, more than 30 oil and gas discoveries have been made offshore Guyana.[12] As of May 2024, ExxonMobil estimated its discoveries totaled 11 billion barrels of oil equivalent.[13]
Liza Phase 1 project in the Stabroek block began producing crude 20 December 2019.[14] Two more projects began production in February 2022[15] and November 2023.[16]
