BP's exit from an ultra-frontier licence in Australia might seem like another hammer blow to the exploration sector. In fact, it's part of a bigger picture where the industry's resource capture strategy has begun to shift towards lower risk opportunities. And returns from exploration already appear to be rising as a result.

Pulling out of the Great Australian Bight licence, acquired in 2011 in a different era, doesn't come without baggage. The JV, which includes Statoil, committed to spend US$605 million and drill four wells. More than US$200 million has already been sunk, and a high-spec newbuild rig is under charter and was due to spud the first exploration well by year end. But it's not the only example of an operator having second thoughts on the merits of ultra deepwater frontier exploration.

Exploration budgets for virtually all upstream companies have been pared back drastically in the aftermath of the oil price collapse. Global spend on conventional exploration was US$90 bn in 2014; this year it will be US$40 bn of which virtually all is contractually fixed – zero previously uncommitted discretionary investment is being made in the current environment. We don't think overall exploration budgets will rise much above this level until 2019 at the earliest. Only those for whom exploration is a raison d'etre, such as Kosmos, have sustained spend at 2014 levels.

Reduced spend on exploration is part of a broader change in approach to resource capture underway. Attitudes to risk and reward are the driver, notably exploration's perceived high risk and damningly disappointing returns. There are alternatives with lower risk profiles.

Majors' resource capture strategies are already becoming more balanced between exploration, unconventionals, DROs and M&A. Unconventionals have crept up in importance, accounting for 18% of the Majors' spend in 2015, concentrated mainly among ExxonMobil, Chevron, Shell and BP. The Majors are underweight exposure to unconventionals but the proportion is only going to increase over time.

A new phase of large scale Discovered Resource Opportunities (DROs) such as Iran and Mexico has emerged in the last few years. DROs typically (though not always) have modest returns, commensurate with low below-ground risk. But the contracts are usually long-life - Total's ADCO deal signed in 2015 will deliver oil volumes equivalent to 7% of the company's 2017 production for 40 years. The Majors will also use M&A to acquire new or beef up existing advantaged positions, with ExxonMobil's acquisition of Inter Oil's PNG gas assets earlier in 2016 a prime example.

Exploration teams are having to make smaller budgets do more. Lower drilling costs are helping with rates for rigs out of contract half what they were in 2014. But so too do strategies. In a 'risk off' market, appraisal/mature basins/ onshore/short lead times trump exploration/frontier/deep water/long lead times. Meticulous prospect screening is key, and value is king once again over volume.

The early evidence is that a sharper focus is already paying off. The Majors achieved an average full cycle IRR of 9% from conventional exploration in 2015, the best since 2010 (10%) in the latest analysis by our Exploration Service. One swallow doesn't make a summer, but this brings to an end the dog days of this decade which culminated with an average IRR of 1% in 2014. For the record, the Majors' average IRR for 2015 was 12% from organic unconventional activity, and returns from unconventionals have been superior over the last 5 years.

Where do conventional explorers go from here? Keep ploughing the same furrow seems the best bet – drive up success rates and returns with low risk strategies. The missing element is volume, for the most part found in basins synonymous with frontier/deepwater/long lead times – as well as high development costs with big capital commitments.

Progress is being made to get project costs down, but not enough has happened yet to make all but the biggest frontier discoveries competitive with tight oil on the future supply curve.

The industry's ultra-conservative approach to risk will change as costs fall over time and if the uptick in conventional exploration returns turns into a trend. Higher oil prices would also help. When the market is once again 'risk on' those few companies taking advantage of the downturn and acquiring frontier acreage with low commitments will reap the rewards, whilst others may rue a missed opportunity. And by then perhaps conventional exploration will be winning a bigger share of the budget.