(Bloomberg) — After hitting rock bottom in the past two years, global oil and natural gas exploration is picking up again. But it’s still far from replacing what’s being produced.
Companies are likely to drill 3 percent more offshore exploration wells this year and boost the number by another 8 percent in 2019 after activity dropped every year since 2011, according to Oslo-based consultant Rystad Energy AS. The amount of oil and gas discovered in 2018 is on track to rise by about 20 percent compared with last year, which was the worst since at least the 1940s.
The forecasts show how crude’s resurgence is giving oil companies the firepower to start investing. Exploration spending was one of the first expenses to be chopped during the industry rout, resulting in newly discovered volumes of so-called conventional oil and gas falling to the lowest on record in 2017. Still, new finds won’t be enough to alleviate concerns of a supply shortage by the middle of the next decade.
Even if explorers were to discover about 10 billion barrels of oil and gas this year, they would only replace about 21 percent of the volumes that will be produced globally, up from 18 percent last year, said Nils-Henrik Bjurstrom, a product portfolio manager at Rystad.
“It’s not a strong recovery,” he said in a phone interview on Tuesday. “It’s rather that the trend has turned.”
The last time the reserve replacement ratio hit 100 percent was in 2006, Rystad said in December.
Most of the additional offshore exploration this year is expected to be in Norway, Latin America, the U.S. Gulf of Mexico and Africa, Rystad said in a note this month.
Norway, western Europe’s biggest oil and gas producer, is one of the fastest-recovering petroleum provinces globally, with as many as 50 exploration wells likely this year compared with 36 in 2017, according to the Norwegian Petroleum Directorate. Explorers in the country are also unlocking the most crude and gas per well since 2010, according to Bloomberg calculations. That’s partly due to a greater willingness to take risks, according to the NPD.
While exploration is getting more efficient this year, pure luck could continue to play just as big a role, Bjurstrom said. The discovery rate of 2017 was “abnormally low,” pushed down by disappointing results for some of the most promising prospects, such as Equinor ASA’s Korpfjell in Norway’s Arctic Barents Sea, he said.
“Exploration is a gamble,” Bjurstrom said. “Sometimes you end up under average, sometimes above.”
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