This year, deepwater oil exploration has gained increasing attention, particularly following significant discoveries off the coasts of Namibia and Guyana. These findings may signal the start of a new wave in oil exploration, driven by the ongoing global demand for oil.
According to analysts at Wood Mackenzie, new oil discoveries are crucial for meeting future energy needs, providing affordable energy, and ensuring energy security. Despite the negative press surrounding the oil industry, which has affected some investors, offshore exploration remains a key focus. However, the industry’s reputation has diminished interest from some explorers, reducing their enthusiasm for such projects.
Currently, only major oil companies and state-owned firms are leading deepwater exploration, but the potential rewards are vast—offshore reserves in depths of over 2,000 meters could hold hundreds of billions of dollars in oil and gas resources. The stakes are high, with Big Oil seeing strong returns in ultra-deepwater exploration, yielding double-digit profits.
Wood Mackenzie’s data shows that since 2015, Big Oil has created over $160 billion in value from new field discoveries, assuming a conservative long-term Brent crude price of $65 per barrel. Full-cycle returns since that time have consistently exceeded 10%, averaging 15%. While the oil sector may be tarnished by its reputation, investors are still drawn to the promise of these lucrative returns. Analysts at Wood Mackenzie suggest that companies that scaled back exploration in recent years may return to the deepwater sector to reinvigorate their portfolios, especially since exploration often costs less than purchasing assets for growth.
The trend began with Exxon’s successful exploration offshore Guyana, where the company unlocked over 11 billion barrels of oil from 12 discoveries. Guyana is now poised to become a major oil producer, with output expected to reach 1.3 million barrels per day by 2037. Since Exxon first struck oil in 2015, the country has produced 500 million barrels in just five years.
Other oil giants are following Exxon’s lead, with Shell, TotalEnergies, and Portugal’s Galp exploring the Orange Basin offshore Namibia, which may contain billions of barrels of oil. These discoveries could position Namibia as the fifth-largest oil producer in Africa. For example, Galp’s Mopane discovery alone could hold over 10 billion barrels of crude.
Despite predictions from organizations like the International Energy Agency that oil demand will eventually peak and decline as the world shifts toward electrification, these discoveries suggest that deepwater exploration is continuing at full pace. The shift to renewable energy may be slow, spurring oil companies to maintain their focus on offshore projects.
Rystad Energy recently called the current decade the “decade of deepwater exploration,” forecasting that investments in offshore oil exploration will reach $104 billion this year, with further growth expected. Wood Mackenzie also predicts a 60% increase in offshore oil production by 2030, suggesting that deepwater exploration could fill the gap left by slowing U.S. shale production due to reservoir depletion.
Africa is quickly becoming a hotspot for deepwater exploration. Following discoveries offshore Namibia, major oil companies are expanding their operations to South Africa, which shares the Orange Basin. TotalEnergies recently announced plans to drill seven wells in the area. Additionally, Italy’s Eni has acquired four new offshore blocks in Côte d’Ivoire, marking the country’s first net-zero offshore oil development project. TotalEnergies also received an exploration license for an offshore block near São Tomé and Príncipe, an island off the coast of Equatorial Guinea. Liberia, too, is emerging as a potential oil producer, with a licensing round for up to 29 offshore blocks earlier this year.
Offshore oil exploration is experiencing a resurgence. While climate activists may push for a shift away from fossil fuels, investors are keen on the opportunities presented by deepwater exploration. Big Oil’s strategy of prioritizing shareholder returns, fiscal discipline, and long-term sustainability is driving these new large offshore discoveries.
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