-- About 30 of the world's largest exploration and production companies are staring at a near 40% decline in output between 2025 and 2040, Wood Mackenzie said in a note on Thursday.
"The upstream industry has an enormous and ongoing challenge. For liquids alone, today's onstream fields will fall short by 300 billion barrels of the almost 1,000 billion barrels needed to meet the cumulative demand through 2050 under our base case, absent reserve upgrades," Wood Mackenzie analysts said.
Exploration can help generate value through discovery of advantaged barrels to replace higher-cost or otherwise disadvantaged resources, either oil or gas, the researchers said.
Between 2021 and 2025, the upstream industry created about $54 billion of value after the deduction of $97 billion in exploration spends, when considering a long-term Brent crude price of $65 a barrel. The figure rises to $120 billion when Brent is considered at $85/bbl, according to the note.
During the same period, the industry spend on exploration has been largely stable, with an annual average expenditure of $19 billion on 633 wells. In 2025 though, the average spend dropped to $16 billion on 388 wells, which Wood Mackenzie said was "an aberration".
"The resilience of investment reflects the long-term nature of the sharp end of the upstream value chain and is despite a near-doubling of rig day rates, which comprise a substantial part of well costs," analysts said.
The ultra-deepwater frontier plays in water depths of more than 1,500 metres are providing the most opportunities in high value creation but only a handful of companies, including the seven energy majors and a few national oil companies, have exhibited the risk appetite and skills to operate such assets, the note said.
Among the major such discoveries over the past five years include those by ExxonMobil (XOM) in Guyana, Eni (E) in Cote d'Ivoire, Indonesia and Cyprus; BP in Brazil, and Turkey's TPAO in the Black Sea.
"Frontier explorers are widening the net to underexplored basins, including Brazil's Foz do Amazonas, as well as extensions of existing plays in Angola, Suriname and elsewhere," the note added.