Industry executives and data indicate that oil and gas companies are planning to increase their expenditures on fossil fuel exploration by 60%.
In contrast to the 2020 slump and the pandemic lockdowns, analysts at Wood Mackenzie, a global oil industry consultancy, discovered that investments in oil and gas among the world’s 23 largest producers are expected to increase by more than 60% by the end of the year.
According to Wood Mackenzie’s analysts, “the primary motivator has been the emerging recognition that the shift is proceeding more slowly than anticipated, suggesting that oil and gas demand may be stronger for longer.”
Additionally, it stated, “EuroMajors are aiming to invest more upstream in order to address production and cash flow shortfalls. US Majors and some Emerging Majors have already utilised M&A to broaden and deepen upstream exposure. We anticipate further sector consolidation in 2025.”
Following Shell and BP’s postponed plans to transition from their legacy businesses and invest in renewables as part of the energy revolution, THE NEWS CHRONICLES revealed a revived appetite for oil and gas reserves and production, particularly among European majors.
“Companies are clustering around an average reinvestment rate of fifty percent, again assuming $75 per barrel. Brent – Majors somewhat higher, NOCs lower. Peer group returns to shareholders, whether in the form of buybacks or dividends, typically range from 35 to 60 percent,” Wood Mackenzie analysts added.
There are outliers, according to the UK-based research and consulting firm, since one or two businesses with significant development projects may need to sell assets to fund payouts and invest up to 80% of cash flow.
Wood Mackenzie researchers observed that “for IOCs, capital allocation fits within a conservative overall financial framework that includes target balance sheet gearing at or below 20 percent (the Majors’ average was 16% in Q2 2024, half the end-2020 peak).”
TNC learnt that exploration is a high-risk, long-term endeavour. The development of expensive offshore projects usually takes five years, and it takes at least ten more years to recover the initial investment.
However, for energy majors, it has proven to be a more dependable source of profit than the very different business model of creating renewable energy.
According to data viewed by THE NEWS CHRONICLES, the majority of renewable energy projects have yielded returns of up to 8%, whereas upstream oil and gas have historically generated returns of about 15% to 20%.
Nambia to far Eastern Canada
In order to exploit 27 billion barrels of oil reserves, Wood Mackenzie estimated that up to $185 billion would be committed, with foreign oil corporations concentrating on the more expensive, higher-return deepwater operations.
Additionally, it predicted that by 2027, 75 percent of the world’s demand for floating rigs will come from the so-called Golden Triangle, which includes the U.S. Gulf of Mexico, South America, and West Africa, as well as a portion of the Mediterranean.
Since Shell and TotalEnergies made discoveries off the coast of the southern African nation, Nambia, which has yet to produce any oil or gas, has drawn a lot of attention.
Shell’s chief of upstream, Zoë Yujnovich, stated on June 14, 2023, that drilling test findings were positive.
According to a document obtained by Reuters, Shell intends to drill two more wells in Namibia by the third quarter of this year in collaboration with its partners, QatarEnergy and Namibia’s national oil business.
The document also reveals that Shell has sought for a licence to drill ten further exploration and appraisal wells there.
In February 2022, TotalEnergies discovered oil in the Venus well in Petroleum Exploration Licence (PEL) 56 in Namibia. Barclays analysts believe that the well has 3 billion barrels of oil equivalent (boe).
According to Barclays, Shell announced discoveries in the Graff, La Rona, and Jonker wells in PEL 39 in Nambia, which collectively are thought to contain 1.7 billion boe.
BP is increasing oil exploration efforts in frontier areas in the Gulf of Mexico and far off the eastern coast of Canada in an attempt to offset a decline in oil and gas output following its switch to renewable energy.
