Pandemic, energy transition: what future for oil exploration?

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The COVID-19 pandemic and the drop in oil prices that it has caused has generated monumental losses among the oil giants, forced to tighten their belts and in particular to brutally curb their exploration and drilling activities.

With the energy transition expected to dampen demand for black gold in the long term, an entire industry is seeing its future darken.

“Oil exploration has taken a big hit this year with the collapse in demand and prices for oil due to the global pandemic,” summarizes Stephen Brennock, PVM analyst.

In the North Sea, drilling activity has been cut by 70% in the UK and 30% in Norway compared to pre-crisis plans, according to a study by energy research firm Westwood published late September.

The American ExxonMobil has already reduced by 30%, or 10 billion dollars less, its investments and in particular those related to the exploration and drilling of hydrocarbons. The Italian ENI, the British BP, the Norwegian Equinor, and even the powerful Saudi group Aramco have also greatly reduced the sails.

Subcontractors pay a heavy price, like the French oil services group CGG, a company responsible for evaluating the resources of the subsoil, which expects a turnover down 40% this year.

Across the Atlantic, more than thirty exploration and production companies have already filed for bankruptcy in the United States since the start of the year, according to the Texas law firm Haynes & Boone. If the price of WTI remains permanently stuck at 40 dollars, 150 more could join them by 2022, estimate the analysts of Rystad Energy.

Question of survival

“The markets no longer believe in the future of oil,” says Bjarne Schieldrop, Seb analyst, interviewed by AFP. “Without possible growth (in the exploitation of black gold), what can the industry do?” He asks himself before answering: focus on profitability while spending less.

More optimistic, Raphaela Hein, analyst at JBC Energy, expects that “outside the United States, which will take longer, drilling programs in all major supply areas will resume and move closer to pre-crisis levels next year ”.

“In the past, we’ve seen that massive spending cuts in the majors’ budgets haven’t really had an impact on their upcoming production. Because looking for new fields, even to a lesser extent, is a question of survival, ”she says.

But the fight against global warming is a game-changer: the British hydrocarbon giant BP, and others, now estimate that the demand for oil in the world may have already reached its peak and continue to decline.

According to Westwood, and despite shifts towards the development of greener energies, the roadmaps of the majors still show an appetite for exploration, but it is met with a recovery in crude prices.

The prices of Brent listed in London and WTI traded in New York collapsed in March and April, and now seem to be stuck around $ 40 a barrel: a price too low for many players in the sector, especially the US, to reach. the profitability.

Frozen Eldorado

However, here and there, exploration projects emerge, as in the Arctic, which would be likely to contain 13% of the oil reserves and 30% of the undiscovered natural gas in the world, a windfall more and more accessible thanks to the accelerated melting of ice.

Russian Gazprom Neft and Anglo-Dutch Shell announced their alliance in July to explore and exploit the Arctic Peninsula.

The government of Donald Trump for its part approved in mid-August a program paving the way for oil drilling in the largest protected natural area in the United States, Alaska.

The drilling program covers a coastal area of ​​approximately 70,000 square kilometers – the size of Ireland – along the Arctic Ocean.

For meme Huh, these projects are however “not economically viable and the current crisis makes their realization even more improbable”, even if “the political will can always prevail over these considerations”.

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