3. Big wells mainly in deepwater and frontiers
2018's mantra will be to keep the focus on simpler wells. More than half of all oil and gas volumes will again be found in deepwater, while explorers will steer clear of high-cost areas, difficult logistics and slow-to-drill wells. Although risk tolerance will strengthen, prospects with less than a one-in-ten chance of success are unlikely to be drilled.
The best discoveries should come from newly proven plays and frontiers, as we have seen throughout the downturn.
4. A race for quality
As the industry plans for the future , a core focus will be capturing new acreage for the longer term. Some will want to position themselves for a lower breakeven future, while others will renew portfolios after a long period of inventory depletion. There will be approximately 40 licensing rounds during the year, and we expect strong competition for quality acreage as key players compete for a smaller pool of opportunities. Licencing rounds in Brazil and Mexico will be the ones to watch.
5. Long overdue move back to profitability
We expect the industry to achieve double-digit returns in 2018, with lower costs and redesigned portfolios already paying off. Many exploration costs have halved since a 2014 peak, thanks to a focus on achieving efficiencies while avoiding complexity.
However, the demand for quality acreage could push up prices. Can explorers hold their discipline to avoid value erosion as competition intensifies in hot plays?
In 2018, the industry will drill fewer, better wells focused on plays that are commercially attractive. After a difficult few years, the economic outlook is at last looking brighter for explorers.