In June, oil giant BP announced what it deemed an “important” new discovery in Egypt.
As The Wall Street Journal reports, it turned out to be a modest natural-gas find that didn’t even rank in the top 50 discoveries since 2012. The fact that BP and its partner Eni SpA hailed it as a major success is a sign of the times for the oil industry.
For years, big oil and gas companies poured ballooning sums into seeking mammoth reserves in difficult locations. But their recent record was spotty, and a dearth of major finds was followed by the oil-price slump that began in 2014. It prompted companies to cut costs and shift away from expensive, high-risk exploration.
World-wide, oil-exploration spending last year was the lowest since 2007. There’s been less conventional oil and gas (as opposed to resources contained in shale or oil sands) discovered in the past 2½ years than in 2012 alone, according to Edinburgh-based consultancy Wood Mackenzie.
And oil companies will likely show continued pressure on exploration budgets when they report their third-quarter earnings over the coming week, say analysts.
Oil prices were down this morning and hovering around a three-week low over worries that U.S. oil stockpiles would rise this week and that the Organization of the Petroleum won’t follow through on promised production cuts. Brent crude, the international benchmark, fell 2%, dropping below $50 a barrel for the first time in nearly a month.
Some in the industry say the decline in exploration spending will eventually contribute to an oil drought—and spiking crude prices. Saudi Arabia’s energy minister Khalid al-Falih told an oil conference in London this month that the underinvestment caused by weak oil prices over the past two years will result in “a period of shortage of supply.”
Others say it is the new normal, in which giants like BP and Royal Dutch Shell will increasingly focus their exploration on less risky and more easily accessible reserves—and spend some of the money they used to use for exploration to buy already-discovered resources from smaller companies.
