Over the last ten years, wildcat drilling has declined overall, particularly in mature fields such US, Canada, and the UK. In particular, the fall in oil price and competition from cheaper-to-drill unconventional oil and gas wells, such as shale, has impacted activity.

However, due in large part to falling costs for drilling rig rental, Rystad Energy notes that 2019 was, in fact, a bumper year for new oil and gas discoveries. The industry uncovered 12.2 billion barrels of oil equivalent throughout the year, the highest volume since 2015.

For high impact wells, defined as wells with expected big volumes of gas or oil, there was a spend increase of 36% from 2018 to 2019, with 91 wells drilled altogether, according to data from Westwood Global Energy. Drilling spend was around $3.5bn.

Nevertheless, despite some strong finds, such as in Guyana, many of 2019’s high-impact wells turned out to be duds - proving just how risky wildcat drilling can be. Over ten billion barrels of estimated pre-drill volumes were at stake in wells that failed to encounter hydrocarbons, according to Rystad.

In fact, the success rate for wildcat drilling is around 30%, with only one in three wells likely to make money, says Graeme Bagley, head of global exploration and appraisal at Westwood Global Energy.

“Most of the time, wildcats fail, but the hope is, when a company drills enough of them, it will discover enough oil to cover the overall cost. However, firms need to accept that more often than not they will come up dry,” he explains.

Typically, before a company decides to drill a wildcat it will calculate the odds of it being successful.

While large companies can generally afford a dry hole that costs $50m-$200m - few others can. To share the risk, more nimble, large independent oil and gas companies, such as Marathon, ConocoPhillips, Apache, Cairn Energy, and Tullow Oil may decide to undertake the initial studies to identify promising international oil and gas prospects, acquiring them from state bodies, says Al Rivero, director of sales at Rajant Corporation, a technology provider to the industry.

“Large independents may even drill the first well, thereby substantially de-risking it. However, when substantial financial support is required, they often farm out to the majors and retain a minority interest in return for being relieved of future financial obligations and risk,” he explains.

“This can work very well; however, it often puts the smaller players, Cairn and Tullow are examples, on a roller coaster ride with their share price rising and falling dramatically with each press release from the operator of the project.”

Overall, exploration drilling has become risker since the 60s and 70s, when big open oilfields, such as in the Gulf of Mexico and the North Sea, were discovered, says Bagley.

“Those days are gone,” he says. “There is a finite amount of oil on the planet and the big easy ones have been found. Instead what we're seeing are basins that are generally much smaller, with no one huge find in one single location.”

For example, the discovery offshore Guyana, at estimated six to ten billion barrels of oil and gas, is a fraction of what was discovered in the North Sea, he says. Therefore, capital and future costs are a huge part of the decision making.

“Experienced engineers and a good database are required to make an accurate assessment of rigs, material, and services. Also, once a discovery is made, the operator needs to know before investing how long it would take to develop the field and start getting cash flow,” says Rivero.

“Since most of the large discoveries are offshore, this all depends on water depth and distance offshore as well as the depth at which the reservoir is found. Clearly, a reservoir at 15,000 ft, as is now common, is much more expensive to reach than one at 5,000 ft.”

Furthermore, new exploration frontiers are not well known as little data exists, adding to the risk and potential costs.

Fortunately for oil companies, some costs are falling.

“The main thing that has bolstered activity is a reduction of costs by the oil rig companies, who now charge less to lease their rigs, so firms are getting more for the same amount of money,” says Bingley.

After the oil price crash in 2014, wildcat drilling became unaffordable and activity dropped significantly. This forced the rig rental companies to drop their prices in a bid to survive, resulting in activity remaining more or less steady in 2017 and 2018, and picking up in 2019.

As such, both Westwood and Rystad predict 2020 exploration drilling numbers to remain roughly the same as 2019, though not all companies have released their drilling plans yet.

“At the end of the day, we will need to keep finding and producing oil for a long time, despite the energy transition going on in the background - that may take up to 20 years, if we don't keep looking for it now we will run out of oil before then,” says Bagley.

In May last year, Rystad said offshore oil and gas still has tremendous room for growth. It estimates around 800 billion undiscovered barrels of oil equivalent exist globally, suggesting wildcat exploration will still be in business in the next 50 years.

However, Audun Martinsen, head of oilfield services research at the firm, has said the industry's appetite for exploration will continue to weaken over the long term as more potential resources are discovered.

“Exploration will likely be forced into deeper and more remote waters, which could be too expensive to develop given the availability of other competitive sources of supply,” Martinsen said.

Unconventional oil and gas development and increasing political risk globally, as well as pressures to mitigate climate change, will likely put further emphasis on the economics.

For the short term, at least, Bagley expects activity to remain largely the same in 2020, ‘unless something calamitous that creates a collapse in the oil price happens’.

But he predicts activity shifting from Northwest Europe to the Americas, with similar levels of activity around Africa and the Far East.

In particular, Brazil, which has one high impact well currently drilling and seven wells planned for 2020, and Africa, which has around 14 high impact wells across ten countries, including Guinea Bissau, Kenya, Namibia and Gabon, will be areas to watch.

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