Global Oil & Gas: World oil exploration dips to 60-year low


Photo by Bloomberg

With exploration activity waning, global oil and gas exploration has reached a historic low, according to the latest PwC Africa oil and gas review 2017, which highlights just three new major discoveries in Africa during 2016 and the first half of 2017, compared with 11 in 2015.


In 2016, there were 174 global oil discoveries – the lowest in 60 years – plunging to 2.4-billion barrels a year, compared with an average of nine-billion barrels a year over the past 15 years.

The report, released on Wednesday, showed a continued downward trend over the past four years in terms of Africa’s share of global oil production, which decreased from 9.1% of global output to 8.6% in 2016.

Africa’s daily production dropped to 7.9-million barrels a day of crude oil in 2016, equating to a year-on-year contraction of 4.9%.

Boasting 128-billion barrels of oil reserves, proven oilreserves in the region are estimated at 7.5% of the global tally – 0.1% less than a year ago – while the continent’s proven natural gas reserves at the end of 2016 were 503.3-trillion cubic feet (tcf), 1% higher than the year before.

The overall quantity of gas produced in 2016 reduced by 1.1% down to 208.3-billion cubic metres (bcm), with 90% of African gas production continuing to come from Algeria, Nigeria, Egypt and Libya.

However, the decrease in production and additional discoveries had expanded the years of available natural gas production from 66.4 to 68.4.

Despite exploration activity being at an historic low, there are still a “few exciting discoveries” in the US, Angola, Senegaland Malaysia, among other countries, said PwC Africa oil and gas advisory leader Chris Bredenhann.

While there have been a handful of discoveries in offshore Africa over the last year, the prospects have been in the pipeline for a while.

The recent large finds in Africa include Owowo, in Nigeria, with a potential of one-billion barrels of oil; Cayar, in offshore Senegal/Mauritania, with about 15 tcf of gas; and Block 20/21, in Angola, with 313-million barrels of condensate and 2.8 tcf of gas.

However, it is not expected that exploration activity will ramp up significantly until the oil price shows indications of sustainable increases.

As industry activity continues to wane globally, the oil and gas industry in Africa continues to face market challenges and increasingly needs to readjust its focus and review strategies to stay relevant and resilient in an ever-changing environment.

“Africa’s oil and gas industry is experiencing significant change and upheaval. There are fundamental shifts in companies’ strategies, business models and ways of working,” Bredenhann said.

The industry has started focusing investment on a “very few select” projects, while limited cost-cutting activities continue.

The oil and gas report revealed that the challenges facing the industry remained the same year-on-year.

Regulatory uncertainty remains the number one impediment for oil and gas companies globally for the fourth consecutive year, while corruption has remained among the top three challenges over the last four years.

Tax requirements, which ranked in the top six challenges for the past four years, financing costs and foreign currency volatility also feature in the top five challenges facing the industry in 2016.

The report indicates that, aside from those challenges, adjusting to the “new normal” of lower oil prices remains a concern for companies.

Meanwhile, while the oil price has been relatively stable through 2017, the companies surveyed expect the price to stay steady at $51/bbl and $60/bbl for 2018 and 2019 respectively.

The price has been trading within this range since its recovery from the January 2016 low.

In response to these, and other challenges, companies’ top focus areas in 2016 included operational excellence; restructuring and new organisational design; capital expenditure and expansion; regulatory and environmentalcompliance; and technology infrastructure.

Of these, operational excellence has been the main constant every year over the past four years; the other focus areas are new entrants in the top five in 2016 as companies are putting plans in place to enable a more agile response to commodity price fluctuations in the future.

During the survey period, key areas of expenditure over the next three years for the respondents included the development of new capabilities or enhancing existing ones; local content and skills development; infrastructure improvements; improved efficiencies; and regulatory compliance.

However, PwC believes that the industry in Africa needs to adopt and leverage technology to face up to the challenges.

“Instead of simply catching up to the rest of the world, this strategic effort will enable industry players on the continent to leapfrog the rest,” PwC noted.

“The outlook should include a strategy that is dynamic and fluid to market and situational changes. While portfolios should be diversified, African oil and gas companies need to learn to leapfrog so that they are not only ahead of disruption, they actually cause it,” the report said, concluding that this would enable the continent to meet traditional challenges head-on.

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