The Covid-19 pandemic that has slammed oil demand and prices is forcing energy majors to tighten their belts on exploration, even if finding new deposits remain essential to their existence.
While the sector is increasingly diversifying into greener energies such as electricity and wind power, its core business remains oil and gas.
“Questions abound over whether it is still profitable to look for oil given subdued demand growth prospects and a low-price environment,” Stephen Brennock, analyst at oil brokers PVM, said.
“The answer seems not, judging by the recent spate of massive hydrocarbon asset writedowns.
“Set against this backdrop, I don’t expect a rebound in drilling in the medium-term.
“Instead, oil majors will be forced to beef up their green energy portfolios in order to survive,” Brennock said.
Compared to pre-virus plans, the energy sector has slashed exploration projects in UK North Sea waters by 70 per cent and by 30 per cent off the coast of Norway, according to research group Westwood.
US oil giant ExxonMobil has cut its total exploration plans by 30 per cent, or an investment reduction of $10 billion.
European rivals ENI, BP and Equinor have carried out similar moves, which have in turn hurt subcontractors including French oil services group CGG, which expects revenue to slump 40 per cent this year.
In the US, more than 30 oil exploration and production companies have this year filed for bankruptcy, according to Texan law firm Haynes & Boone.
If oil prices remain stuck around the current $40 per barrel level, a further 150 such companies could be lost by 2022, estimates research group Rystad Energy.
“Drilling programmes will be hampered in the near-term, in particular in US shale areas but also elsewhere, because of immediate cost-cutting measures,” said JBC Energy analyst Raphaela Hein.
“In the past, we have seen that massive capital expenditure cuts to majors’ budgets did not really impact their future production.
“As such, we think that they will continue to look for new fields – maybe to a slightly lesser extent . . . and keep production within their long-term plans.
Hein however said Arctic projects appeared to be “economically unviable”.
This despite the vast area forecast to have 13 per cent of the world’s oil reserves and 30 per cent of its undiscovered natural gas.
In July, Russia’s Gazprom Neft and Anglo-Dutch giant Shell announced a partnership to explore in the Arctic.