Current upstream market trends are quite unpredictable: global drilling activity continued its growth from 2017, but this can mainly be attributed to onshore drilling, which was up by 8% compared to offshore activity which has declined by 4%. In addition, deep offshore drilling is still hampered by high drilling costs, which limits investment in new projects. Onshore drilling showed a growth of 15% in 2018, and in 2019, according to some experts, is expected to remain highly dependent on the development of unconventional crude oil which is still growing, but at a slower pace (+10%).
However, according to some professionals, there are fewer onshore opportunities now than there used to be. The richest onshore regions are either already drilled at the biggest discoveries areas or locked up for environmental or political reasons, like Alaska's Arctic National Wildlife Refuge or the Orinoco Belt in Venezuela.
As a result, a surge in investment and discovery can be seen in the Gulf of Mexico, West Africa, the Mediterranean, the North Sea and the Asia-Pacific Region. However, there is another strategic point of view that advocates investing in onshore projects on the background of the increasing offshore investments to fill this gap.
A significant number of investors use geophysical activities as the indicator for the likelihood of exploration success in one region or another. Geophysical vessels worldwide record 2D and 3D seismic campaigns using ocean bottom seismic (OBC) cables, ocean bottom node (OBN) and electromagnetic nodes. Currently, most of them are located in five major regions where offshore activity has developed: the North Sea in North-West Europe, South-East Asia, Latin America, West Africa, and the Gulf of Mexico.
Among the most prospective regions, some experts cite the Indian Ocean, the Middle East and North America, as these grew the most in terms of exploration volume over the last year. South-East Asia gained just 2%, while North-West Europe and West Africa stagnated with -3% and -2% activity. Latin America and Brazilian offshore exploration was 30% down.
The others are focused on CAPEX, which grew in all developing E&P regions except Africa. CAPEX there were down 3%, excluding Egypt, where offshore exploration activity is recovering after years of decline, and Algeria, where Sonatrach's budget remained stable. The development of E&P projects in Africa is more expensive and complicated because of regulations specific to the region. In spite of this, investments in the region are expected to grow.
In the Gulf of Mexico, offshore CAPEX slowed its decline in 2017. With regards to investment dynamics in North America in general, there was a significant disparity in 2018 between it and the rest of the world as it grew by 18%.
The easiest way is to invest in majors such as Exxon Mobil and Petrobras as well as independents such as Hess.
Recently however, the development of offshore technologies has attracted more and more investors to the companies developing and providing such solutions. Among the most promising of these are innovations in artificial intelligence (AI), drones, 3D printing, trend of automation – particularly with regards to decision-making – and deepwater drilling equipment and 3D and 4D mapping of the ocean floor.
In 2014, global E&P investment reached a peak of US$655 billion before going into a sharp decline until 2017. In 2018, upstream oil and gas investments were estimated at approximately US$382 billion, demonstrating a 7% rise from 2017. Despite the uncertainty about oil prices this growth is expected to continue.
By Regina Chislova, Project Director of EPOCH 2020.
This content is for informational purposes only, and should not be construed as financial advice or as a recommendation or endorsement.
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