Rystad: Global Exploration Falters

September 8, 2022

Image from Eni.
Image from Eni.

Global oil and gas exploration is set to falter this year as the number of licensed blocks and total acreage fall to near all-time lows as the sector struggles to shake off the effects of the Covid-19 pandemic and the ensuing oil market crash, Rystad Energy research shows. 

Only 21 lease rounds were completed globally through August this year, half of the 42 rounds held in the first eight months of 2021. The acreage awarded so far this year has shrunk to a 20-year low of 320,000 square kilometers. Global lease rounds are expected to total 44 this year, 14 less than in 2021 and the lowest level since 2000.

Global spending on exploration has been falling in recent years as oil and gas companies seek to limit risk by focusing on core producing assets and regions with guaranteed output, aiming to streamline their operations and build a more resilient business amid market uncertainty and the threat of a recession.

The political landscape is also contributing to the decrease in license awards, with many governments pausing or halting leases and encouraging companies to wrap up exploration activity within already awarded blocks. This trend is likely to continue as governments are less eager to invest in fossil fuel production and instead look ahead to a net zero future.

“Global exploration activity has been on a downward trend in recent years, even before the Covid-19 pandemic and oil market crash, and that looks set to continue this year and beyond," says Aatisha Mahajan, vice president of analysis, Rystad Energy. "It is clear that oil and gas companies are unwilling to take on the increased risk associated with new exploration or exploration in environmentally or politically sensitive areas.”

The onshore exploration sector is a significant contributor to the decline in awarded acreage. Total onshore acreage awarded in leasing activity has plummeted from more than 560,000 square kilometers in 2019 to a mere 115,000 square kilometers so far this year. Offshore leased acreage also hit a high point in 2019 before dropping off a cliff in 2020 and has remained relatively flat in the past two years.

Concluded lease rounds have dropped significantly in Russia, the US and Australia this year. These countries have held five lease rounds put together so far this year – three in Russia and one each in the US and Australia – down from 17 rounds in the first eight months of 2021 (eight in Russia, five in the US and four in Australia). The drop in the US is primarily driven by the cancellation of Lease Sales 259 and 261 in the Gulf of Mexico and Cook Inlet in Alaska.

Asian licensing has bucked the trend with increased activity and blocks awarded in Malaysia, Indonesia, India and Pakistan. The global decline in licensing rounds has directly affected the awarded acreage, which has hit an all-time low for the January to August period of about 320,000 square kilometers.

The decline in leasing activity has resulted in a considerable drop in Russian acreage awards, falling 90% from a year ago to 9,000 square kilometers, while licensed acreage in Africa shrank 70% to just 46,000 square kilometers spread across Angola, Egypt, Morocco and Zimbabwe, the only African countries to award new exploration acreage to date in 2022. On the other hand, new acreage awarded in Asia between January and August nearly quadrupled from the same period last year, while South American awarded acreage surged by 140%.

Drilling into the awards
Brazil is the largest contributor in terms of blocks awarded so far this year, with 59 auctioned during its Third Permanent Offer Round. European majors Shell and TotalEnergies took all eight offshore blocks on offer – six and two, respectively. The remaining 51 onshore blocks in the Tucano, Espirito Santo, Potiguar, Reconcavo and Sergipe Alagoas basins went to regional players 3R Petroleum (six blocks), NTF (two), Petro Victory Energy (19), Origem Energia (18), Imetame Energia (three), Petroborn Oleo (two) and CE Engenharia (one).

Other sizeable block awards after Brazil were Norway with 54 new licenses in its APA 2021 round, India with 29 blocks its OLAP Rounds 6 & 7, and Kazakhstan’s fourth oil and gas auction round, in which 11 blocks were awarded. There was also some sporadic activity in Africa between January and August, with Egypt providing rights to explore in nine blocks and Angola granting two blocks. South America also saw an offshore licensing round in Uruguay, where three exploration blocks were awarded – blocks OFF-2 and OFF-7 to Shell and Block OFF-6 to US independent APA. Challenger Energy signed a 30-year license for OFF-1 through direct negotiation with the government.



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