Rystad: Oil & gas exploration on the decline with global awarded acreage near all-time lows

With the current energy crisis and clean energy transition taking centre stage, companies are shifting focus to lower-risk core assets and regions, thus, Rystad Energy, an energy intelligence group, forecasts that the global oil and gas exploration spending and activities are expected to shrink even further this year as the number of licensed blocks and total acreage fall to a 20-year low level.

Rystad Energy claims that global oil and gas exploration is set to falter this year as the sector struggles to shake off the effects of the Covid-19 pandemic and the ensuing oil market crash. With only 21 lease rounds completed globally through August this year, half of the 42 rounds were held in the first eight months of 2021. The energy intelligence group’s research shows that the acreage awarded so far this year has shrunk to a 20-year low of 320,000 square kilometres and global lease rounds are expected to total 44 this year, 14 less than in 2021 and the lowest level since 2000.

Furthermore, the company outlines that global spending on exploration has been falling in recent years as oil and gas companies seek to limit risk by focusing on core producing assets and regions with guaranteed output, aiming to streamline their operations and build a more resilient business amid market uncertainty and the threat of a recession.

On the other hand, the political landscape is also contributing to the decrease in license awards, with many governments pausing or halting leases and encouraging companies to wrap up exploration activity within already awarded blocks. Rystad Energy believes that this trend is likely to continue as governments are less eager to invest in fossil fuel production and instead look ahead to a net-zero future.

Commenting on this, Aatisha Mahajan, vice president of analysis at Rystad Energy, remarked: “Global exploration activity has been on a downward trend in recent years, even before the Covid-19 pandemic and oil market crash, and that looks set to continue this year and beyond. It is clear that oil and gas companies are unwilling to take on the increased risk associated with new exploration or exploration in environmentally or politically sensitive areas.”

Meanwhile, the onshore exploration sector is a significant contributor to the decline in awarded acreage, explains the energy intelligence provider, adding that the total onshore acreage awarded in leasing activity has plummeted from more than 560,000 square kilometres in 2019 to a mere 115,000 square kilometres so far this year. Additionally, offshore leased acreage hit a high point in 2019 before dropping off a cliff in 2020 and has remained relatively flat in the past two years.

Moreover, the firm elaborates that concluded lease rounds have dropped significantly this year in Russia, the U.S. and Australia, which have held five lease rounds put together so far this year – three in Russia and one each in the U.S. and Australia – down from 17 rounds in the first eight months of 2021 with eight being in Russia, five in the U.S. and four in Australia. According to the energy intelligence provider, the drop in the U.S. is primarily driven by the cancellation of Lease Sales 259 and 261 in the Gulf of Mexico and Cook Inlet in Alaska.

Rystad Energy underlines that the global decline in licensing rounds has directly affected the awarded acreage, which has hit an all-time low for the January to August period of about 320,000 square kilometres. As a result of the decline in leasing activity, a considerable drop in Russian acreage awards is visible, falling 90 per cent from a year ago to 9,000 square kilometres, while licensed acreage in Africa shrank 70 per cent to just 46,000 square kilometres spread across Angola, Egypt, Morocco and Zimbabwe, the only African countries to award new exploration acreage to date in 2022, says Rystad.

In direct contrast, Asian licensing has bucked the trend with increased activity and blocks awarded in Malaysia, Indonesia, India and Pakistan. In line with this, new acreage awarded in Asia between January and August nearly quadrupled from the same period last year, while South American awarded acreage surged by 140 per cent.

Rystad Energy underscores that Brazil is the largest contributor in terms of blocks awarded so far this year, with 59 auctioned during its Third Permanent Offer Round. The energy intelligence firm points out that European majors Shell and TotalEnergies took all eight offshore blocks on offer – six and two, respectively while regional players 3R Petroleum (six blocks), NTF (two), Petro Victory Energy (19), Origem Energia (18), Imetame Energia (three), Petroborn Oleo (two) and CE Engenharia (one) took the remaining 51 onshore blocks in the Tucano, Espirito Santo, Potiguar, Reconcavo and Sergipe Alagoas basins.

After Brazil, sizeable block awards were noted in Norway (54 new licenses in APA 2021 round), India (29 blocks in OLAP Rounds 6 & 7), and Kazakhstan’s fourth oil and gas auction round, in which 11 blocks were awarded. Rystad Energy highlighted that there was also some sporadic activity in Africa between January and August, with Egypt providing rights to explore in nine blocks and Angola granting two blocks.

In addition, South America saw an offshore licensing round in Uruguay, where three exploration blocks were awarded – blocks OFF-2 and OFF-7 to Shell and Block OFF-6 to U.S. independent APA while Challenger Energy signed a 30-year license for OFF-1 through direct negotiation with the government.