Upstream: five questions about deepwater growth opportunities answered

With many oil and gas companies facing large production declines from existing assets over the next decade, portfolio renewal is high on the agenda for the upstream sector. Geopolitical volatility is increasing the pressure, highlighting concentration risk and pushing firms towards new growth areas. 

For most, the deepwater thematic presents significant operational, technical and capital hurdles, but also attractive rewards. So how can E&P firms identify and evaluate the best deepwater opportunities for their own risk profile? 

Drawing on data from our Lens Upstream platform, our analysts have created a strategic planners guidebook setting out in detail the global deepwater opportunities - in exploration, M&A and strategic partnerships - and how best to access them. Fill in the form to download a selection of complementary slides from the report, or read on for the answers to five key questions about how to grow in deepwater. 

1. Why should E&P firms be interested in deepwater’s rapidly expanding opportunities? 

For the Majors and many national oil companies (NOCs), deepwater represents the potential to access advantaged resources at scale. The right deepwater assets offer high margins, prolific reservoirs, large fields, low emissions intensity, and huge potential upside. For all the Majors peer group the scale and profitability of deepwater is critical to hitting cashflow and investment targets. 

Wood Mackenzie’s Lens Subsurface platform holds data on over 130 ready-to-drill deepwater prospects, including chance of success, resource and valuation estimates. Find out more in the complementary report extract. 

2. Why is it difficult to build a deepwater portfolio? 

High technical, risk and capital thresholds make breaking into deepwater a challenge for many companies. The IOCs and NOCs leading near-term deepwater growth have either partnered with the right Major in the right basins, or built up their expertise on domestic assets before expanding abroad. Others have acquired their deepwater expertise through the corporate acquisition of a company already active in deepwater. In summary, there is more than one way to build a deepwater growth portfolio. 

There are also some clear winners in terms of deepwater value creation over the last decade. Download the free slides to find out more. 

3. What is the best way to grow in deepwater? 

Exploration is the key catalyst driving upstream growth. However, many companies lack either the means or the desire to commit to high-risk frontier exploration campaigns. Most firms therefore lean heavily on M&A or bid on Discovered Resource Opportunities (DROs) offered by governments and NOCs. This reduces some risks but can also impact potential returns. 

For firms willing and able to take the risk, however, the rewards from material deepwater exploration success can be significant. For example, ExxonMobil’s portfolio was transformed by discoveries in     Guyana and will see it overtake Shell as the leading Major in deepwater in the early 2030s. You can learn more in the report extract. 

4. How are operators using M&A to accelerate growth? 

Deepwater is a rich hunting ground for firms with cash on the balance sheet, with a range of M&A opportunities offering access to deepwater assets in every major deepwater basin. Current pricing for some assets is attractive, with a few recent deals being completed at significant discounts, partly due to subsurface risks. However, as more firms focus on portfolio renewal and diversification, low prices may not last. 

Want to know which factors could be driving the deepwater value discount? Download the complimentary slides to find out more. 

5. Why are there increasing opportunities in exploration? 

The need to renew ageing portfolios has led the Majors to pursue a massive acreage grab. These firms are building pipelines of drill-ready prospects of varying size and potential. Farm-in opportunities are plentiful, but E&P firms need to be careful to select the right basin and the right partner — specifically, those with the best track record in deepwater value creation.  

Deepwater opportunity screening: want to identify the right basins with the best prospectivity and terms? Find out more by downloading the report extract. 

This extract explores ready-to-drill deepwater and ultra-deepwater prospects by region, resource size, valuation and company. It also draws on Wood Mackenzie’s Exploration Service and Exploration Company Performance analysis to reveal the leading deepwater E&A value creators and well spenders of the past decade.