In the face of fluctuating oil prices, the exploration of high-impact oil wells—those that are low-cost and have a smaller carbon footprint—remains a key strategy for creating long-term value in the energy sector. A recent report, reviewed by the Energy Research Unit based in Washington, highlights a pressing dilemma for companies: how to balance short-term capital discipline with the need to create sustainable value over the long haul.
According to the report, oil prices are expected to hover between $60 and $65 per barrel until 2026, indicating a decrease of $15 to $20 compared to the previous year, amidst fears of economic stagnation. This decline places immense pressure on companies, as prices approach the breakeven cash flow point for the sector at $62 per barrel.
The report from Wood Mackenzie emphasizes the necessity of continuous investment in exploration, despite the current demand for oil being tempered by U.S. policies. Senior analyst Simran Panada cautioned against hasty decisions that could disrupt investment strategies. "We must not lose sight of the long-term potential of high-impact wells," she stated.
The report also forecasts a significant supply gap of 20 million barrels per day by 2034, which could be addressed through the discovery of high-impact oil wells. The exploration sector has seen a notable improvement in performance over the last decade, both technically and commercially, despite a 50% reduction in exploration spending from 2019 to 2023 compared to the previous five years. Remarkably, the industry has maintained discovery levels at around 100 billion barrels of oil equivalent, with full returns improving from 11% to 17% for companies like Eni.
Deepwater discoveries, those over 1,500 meters deep, are particularly promising, yielding four times more oil on average than continental shelf finds. Companies such as ExxonMobil and Hess in Guyana, Eni in Ivory Coast, Indonesia, and Cyprus, and Total Energy in Namibia have generated significant value, each exceeding $5 billion between 2019 and 2023.
Meanwhile, the Egyptian government is ramping up its oil and gas exploration efforts, particularly in the Mediterranean Sea, which has become a strategic focal point due to massive discoveries like the Zohr field. Chevron has announced plans to invest at least $120 million in the West Star concession area, located northeast of the Mediterranean, which is expected to be rich in natural gas reserves.
The West Star area, which spans over 11,000 square kilometers, is adjacent to areas operated by ExxonMobil, raising the likelihood of successful exploration due to similar geological characteristics. Egypt is counting on international oil companies to boost gas output to meet the growing domestic demand.
In a related development, the Minister of Petroleum and Mineral Resources, Karim Badawy, revealed new measures aimed at intensifying research and exploration activities while increasing production. This initiative is part of a broader strategy to enhance the petroleum sector's role in sustaining the economy. During a recent board meeting of the Egyptian General Petroleum Corporation, Badawy emphasized the need for coordination among state agencies to ensure the sector meets local market demands.
"We are committed to providing the necessary financing to meet the needs of our economy, especially in terms of petroleum and natural gas products," Badawy said. He highlighted the importance of incentivizing investment partners to ramp up exploration efforts and to ensure that the monthly dues owed to partners are met, thereby enhancing economic benefits for both the state and foreign partners.
As Egypt extends the deadline for exploratory drilling licenses, the country remains vigilant in its pursuit of new discoveries. The government is offering new incentives to foreign companies, allowing them to export a portion of their new gas production, which can then be used to settle outstanding debts.
Despite these advancements, the oil exploration sector in Lebanon appears to be stagnating amid ongoing political and security concerns. A source in the oil sector indicated that the exploration for oil and gas in Lebanese territorial waters has fallen off the radar of official attention. The consortium led by Total Energy, which includes Eni and Qatar Energy, has yet to submit its report on exploration in Block No. 9, raising concerns about potential external pressures impacting operations.
As the Lebanese government extends the licensing period for oil and gas exploration, the lack of a new regulatory body to manage the sector raises questions about the future of exploration efforts. The political instability in the region continues to overshadow any intentions to move forward, with the oil file seemingly relegated to the background amidst pressing security issues.
In summary, while the global energy landscape is shifting with new discoveries and investments in high-impact oil wells, the challenges of economic stagnation, political instability, and environmental concerns remain significant hurdles for the industry. The future of oil exploration in both Egypt and Lebanon will largely depend on how effectively these countries can navigate these complex dynamics while fostering sustainable growth in their energy sectors.
