Low acreage acquisition by energy giants likely to lead supply side gap during the second half of the decade

With coronavirus inducing economic lockdowns around the globe, there has been a sharp decline in energy prices last year according to data, as a result top oil companies have significantly reduced their search for new fossil fuel resources, triggered massive spending cuts.

According to data from Rystad Energy, an Oslo based consultancy, acquisitions of new onshore and offshore exploration licenses for the top five Western energy giants dropped to their lowest levels in the last five years.

“The number of exploration licensing rounds dropped last year due to the epidemic while companies including Exxon Mobil, Royal Dutch Shell and France’s Total also reduced spending,” said Palzor Shenga, an analyst from Rystad Energy.

She went on to add, “Acquiring additional leases comes with a cost and it demands some work commitments to be fulfilled. Hence, companies would not want to pile up on additional acreages in their non-core areas of operations”.

Of the five companies, BP’s new acreage acquisition in 2020 saw by far the largest drop. Bernard Looney, who became BP’s CEO earlier this year in February, outlined a strategy to reduce oil output by 40% or 1 million barrels per day by 2030. In recent months, BP has rapidly scaled back its exploration team.

According to Rystad Energy, Exxon was the largest U.S. energy company, acquired the largest acreage in 2020 in the group, with 63% in three blocks in Angola,

Total was second with two large blocks acquired in Angola and Oman.

Acquiring exploration acreage allows companies to search for oil and gas. If new resources are discovered in sufficient volumes, they can then decide whether to develop them, which is a rather expensive process spanning several years.

According to analysts, a drop in exploration activity is likely to lead to a gap in the supply side during the second half of the decade.

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