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Hydrocarbons exploration rebounds

1 March 2023

MEED's upstream oil & gas report also includes: Energy security facilitates upstream spending

 

The world, and particularly countries in the Middle East and North Africa (Mena) region, remains undeterred in its quest to find more oil and gas resources, despite headwinds from energy transition activity and falling long-term hydrocarbons demand forecasts.

Last year, the global oil and gas exploration sector had its strongest year in more than a decade. In its effort to improve portfolios by adding lower-carbon, lower-cost advantaged hydrocarbons, the sector created at least $33bn of value and achieved full-cycle returns of 22 per cent, at $60-a-barrel Brent prices, according to a recent report from Wood Mackenzie.

Julie Wilson, director of global exploration research at Wood Mackenzie, says 2022 was “a standout year for exploration”. 

“Volumes were good, but not stellar. However, explorers were able to drive very high value through strategic selection and by focusing on the best and largest prospects. 

“The discoveries bring higher-quality hydrocarbons into companies’ portfolios, allowing them to reduce carbon by displacing less advantaged oil and gas supplies while also meeting the world’s energy needs.

“The highest value came from world-class discoveries in a new deepwater play in Namibia, as well as resource additions in Algeria and several new deepwater discoveries in Guyana and Brazil, where the latest wave of pre-salt exploration finally met with success,” she says.

“The average discovery last year was over 150 million barrels of oil equivalent, more than double the average of the previous decade,” she adds.

The exploration sector continues to be dominated by national oil companies (NOCs) and majors, with QatarEnergy, France-headquartered TotalEnergies and Brazil’s Petrobras leading the way in net new discovered resources in 2022, according to Wood Mackenzie. In total, NOCs and majors accounted for almost three-quarters of new resources discovered, the research consultancy said.

Qatar’s overseas footprint

In addition to raising gas production capacity from the North Field gas reserve and carrying out a liquefied natural gas (LNG) output expansion programme, QatarEnergy has been pursuing an overseas offshore oil and gas exploration and production (E&P) campaign in recent years.

The state enterprise has been investing in expanding its international upstream footprint, particularly in the gas space. In the past five years, QatarEnergy has acquired interests in gas-rich offshore blocks in Angola, Guyana, Kenya, Egypt, South Africa, Argentina, Mozambique, Morocco, Cyprus, Mexico, Brazil, Oman, Suriname and Canada.

In December, QatarEnergy won an offshore exploration block in Brazil in a consortium with TotalEnergies and Malaysia’s Petronas. QatarEnergy will hold a 20 per cent working interest in the Agua-Marinha production sharing contract, with TotalEnergies holding 30 per cent and Petronas Petroleo Brasil holding 20 per cent. Brazil’s state energy producer ANP will be the operator of the block, with a 30 per cent interest.

QatarEnergy also recently acquired a 30 per cent interest in exploration blocks four and nine off the coast of Lebanon. TotalEnergies is the operator of the blocks, holding a 35 per cent interest, with Italy’s Eni owning the remaining 35 per cent.

Oman E&P arena

Oman hosts the most foreign hydrocarbons E&P companies in the GCC. Majors such as BP, Shell and TotalEnergies have been present in the sultanate since the early 20th century, while smaller international upstream players have also been looking for – and producing – oil and gas for the past three decades.

The majority state-owned Petroleum Development Oman (PDO) operates the sultanate’s biggest and most prolific hydrocarbons concession, block six. The smaller oil and gas concession areas are operated by firms headquartered overseas such as Eni, Occidental Petroleum, Tethys Oil and Maha Energy, as well as by local firms such as ARA Petroleum, Majan Energy & Petroleum and Musandam Oil & Gas Company.

Oman’s Energy & Minerals Ministry signed a concession agreement in December 2021 with a consortium led by Shell’s Oman subsidiary, Shell Integrated Gas Oman, to develop and produce natural gas from block 10 of the Saih Rawl gas field.

The consortium comprises Omani state energy enterprise OQ and Marsa LNG, a joint venture of France’s TotalEnergies and OQ. The concession agreement established Shell as the operator of block 10.

By late January, Shell had started producing gas from the Mabrouk North East field located in block 10.

In September last year, the Omani energy ministry signed another E&P agreement with Shell and France’s TotalEnergies to develop block 11, which is located adjacent to block 10 and is understood to be rich in natural gas reserves.

Shell and TotalEnergies will own 67.5 per cent and 22.5 per cent stakes in block 11, respectively, with OQ holding the other 10 per cent. Shell is the operator with the majority stake in the concession.

UAE makes strides

Abu Dhabi National Oil Company (Adnoc) has completed two upstream concession licensing rounds in the past

four years, attracting oil and gas producing companies from the US, Italy, Pakistan, India, Thailand and Japan to explore for resources.

Offshore block two, which is operated by Italian energy major Eni with Thailand’s state-owned PTT Exploration & Production Public Company (PTTEP), has so far yielded two discoveries with combined estimated reserves of up to 3 trillion cubic feet (tcf) of gas.

In addition, in May last year, Adnoc announced the discovery of 650 million barrels of onshore crude oil reserves in Abu Dhabi, which increased the UAE’s hydrocarbons reserves base to 111 billion stock tank barrels of oil and 289 tcf of gas.

Adnoc also awarded Malaysia’s Petronas a six-year concession agreement in December to explore and appraise oil in unconventional onshore block one, deemed to be the Middle East’s first unconventional oil concession.

In Sharjah, Eni won stakes in all three upstream concession areas offered by Sharjah National Oil Company (SNOC) to international investors in the emirate’s first competitive hydrocarbons block bidding round, launched in June 2018. 

In January 2019, Eni successfully secured 75 per cent, 50 per cent and 75 per cent stakes in SNOC’s concession areas A, B and C, respectively.

Then, in October last year, PTTEP acquired a 25 per cent stake from Eni in area A, as a result of which Eni’s share in all three concession zones is now at 50 per cent.

Sharjah’s oil and gas fortunes reversed in January 2021, when SNOC, together with its partner Eni, announced the start-up of the Mahani 1 gas well. This marked the commencement of gas production from the Mahani field, located in area B, the first such onshore hydrocarbons discovery made in Sharjah in 37 years.

Energy security facilitates upstream spending

Bahrain labours on

Bahrain announced the discovery of the large Khalij al-Bahrain offshore hydrocarbons basin – estimated to contain 80 billion barrels of oil and 10-20 trillion cubic feet of gas – in April 2018.

Nearly five years later, Manama has been unable to make significant progress on the commercial appraisal of the oil and gas resources base. However, the lack of success with Khalij al-Bahrain has not deterred the country from continuing its exploration elsewhere.

In November, state energy conglomerate Nogaholding announced the discovery of natural gas in the two reservoirs of Al-Jawf and Al-Juba. The gas deposits are unconventional and situated in the Khuff and Unayzah geological formations.

Mena players make progress

Iraq, Opec’s second-largest oil producer, continues to seek more hydrocarbons resources in its territory. As recently as in February, the Oil Ministry awarded six oil concessions as part of the country’s fifth licensing round.

Three E&P concessions – one in Basra and two in Diyala governorates – were awarded to UAE-based Crescent Petroleum. Three others, also in Basra and Diyala, were awarded to China’s Geo-Jade Petroleum.

Eni’s discovery of the large Zohr gas field in the Mediterranean waters in 2015 elevated Egypt’s status as a significant upstream market globally, and the country’s government intends to continue to attract more E&P players on the back of this success.

Egypt’s hydrocarbons reserves spiked in 2022 with 53 new oil and gas discoveries: 42 oil wells and 11 gas wells, according to the Petroleum & Mineral Resources Ministry. The discoveries were made in Egypt’s Western Desert region, the Suez Gulf, the Mediterranean Sea and the Nile Delta.

So far in 2023, US-based Chevron, which operates the Nargis offshore concession in the East Mediterranean, together with its partners Eni and Egypt’s Tharwa Petroleum, has announced a discovery of Miocene and Oligocene gas-bearing sandstones.

At the start of this year, Egypt also launched an international licensing round for exploration rights in the Nile Delta and the Mediterranean, comprising 12 onshore and offshore blocks.

“There is a lot of uncertainty in future long-term demand scenarios for oil,” says Wilson. 

“Explorers are accelerating oil exploration to meet near- and mid-term demand, while gas exploration was focused in geographies that can supply the gas-hungry European market. In some cases, major leases are approaching the expiration of the exploration term and companies are pushing to optimise their value.”

She concludes: “By 2030, fast-tracked development of these new discoveries could deliver 1 million barrels a day in oil and half a million barrels a day of equivalent gas production, generating $15bn in free cash flow.” 

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Indrajit Sen

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    Although the Gulf’s national carriers have resumed services, many international airlines have yet to return.

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    Fitch’s assessment is a warning sign for the Gulf. The region’s major airports have built their business models on international connectivity, long-haul flying and transfer traffic – precisely the categories Fitch identifies as most exposed to rerouting risk and weaker visibility on demand. Gulf hub operators also face the prospect of further airspace restrictions affecting routes linking Asia, Europe and Africa.

    The knock-on effects extend beyond airline revenues. Transfer passengers are also the highest-spending travellers in duty-free, retail and food and beverage outlets. Fitch noted that some Asia-Pacific airports have already begun benefiting from the redistribution of transit and long-haul traffic away from disrupted Gulf hubs.

    The global body representing airlines, the International Air Transport Association (Iata), was equally downbeat when it released its latest financial outlook on 8 June. The organisation now expects the global airline industry to achieve a combined net profit of $23bn in 2026 – roughly half the $41bn previously projected and about half the $45bn estimated for 2025. The net profit margin is forecast at 2%, compared with the earlier projection of 3.9% and last year’s 4.2%. Net profit per passenger is expected to be $4.50, down from $9.10 in 2025.

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    The insurance market adds another layer of complexity. Aviation policies typically grant insurers the right to cancel cover during active conflict, and the terms on which cover is being extended in a region that has seen airports repeatedly targeted are likely to be materially more expensive than before.

    Jet fuel prices are expected to average $152 a barrel for the year – an increase of almost 70% on the $90-a-barrel average recorded in 2025

    Carrier optimism

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    While the expectation in the industry outside the Gulf had been that carriers such as Etihad and Emirates would need to discount heavily to entice passengers back after the ceasefire, Etihad has said that it does not expect prices to come down.

    The airline will not be entirely unscathed. Etihad had been on course to deliver a 10% operating margin in 2026, up from 8% in 2025, but that target will now be missed. The airline was badly hit in March, April and May and will not be fully back on track until August.

    Dubai’s Emirates Group released its 2025-26 annual results in May, which confirmed the airline’s status as the world’s most profitable carrier for the reporting year. The group posted a record profit before tax of AED24.4bn ($6.6bn), up 7% year-on-year, on revenues of AED150.5bn, also a record. 

    Unprecedented situation

    The context is important: the results cover the financial year to 31 March 2026, meaning only the final month of March was affected by the conflict. For the first 11 months, the group was surpassing its targets every month. March then brought what Emirates’ chairman and chief executive Sheikh Ahmed Bin Saeed Al-Maktoum described as an “unprecedented situation”. Emirates was flying just 58% of its capacity by 31 March.

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    • Premium: wider reclining seats, extra legroom and complimentary refreshments

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    • Flex: includes seat selection, ticket changes and refunds

    Etihad Rail said introductory fares are designed to encourage early uptake and will be available for a limited period, with pricing expected to transition “towards a more advanced fare structure and, ultimately, a broader fare framework” as the service matures.

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    • Abu Dhabi to Dubai: 57 minutes
    • Dubai to Fujairah: 69 minutes

    Train features include generous legroom, Wi‑Fi, power at every seat, foldable tray tables, overhead storage, space for larger baggage and accessibility provisions. Station features include clear signage, comfortable waiting areas, staff assistance, accessibility features and parking.

    Etihad Rail said the onboard experience is designed around “comfort and time well spent”, enabling passengers to work, relax or switch off in a “calm and spacious environment” with guaranteed seating, Wi‑Fi and charging points.

    Etihad Rail’s network currently supports freight operations across 11 terminals and four major ports, underpinning supply chain efficiency, emissions reduction and national connectivity.

    The company also pointed to the broader economic value of the UAE Railway Programme, stating that it creates opportunities worth AED200bn, while passenger rail is expected to generate around AED91bn in economic and social benefits over the next 50 years, driven by faster, safer and more efficient travel.

    Etihad Rail also differentiated the new passenger service from the UAE’s future high-speed rail plans, saying passenger rail is intended to connect more communities across the country with an affordable and comfortable service, while high-speed rail is being designed for “very fast journeys between central points of our major cities”, describing the two as “different products and services designed for different types of journeys”.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/17448681/main.jpeg
    Yasir Iqbal