The global hunt for new sources of oil will slow by around $3bn this year even as oil prices climb to fresh highs not seen in over two years.
The oil price is now more than two and a half times higher than the historic lows endured by oil companies two years ago, but they are still keeping a lid on risky oil exploration even as prices climb to $68 a barrel.
Oil prices have rallied in recent days in line with growing fears that political unrest in Iran, the third largest oil producer with the Organization of Petroleum Exporting Countries (OPEC), could lead to supply disruptions.
Andrew Latham, a researcher with Wood MacKenzie, according to telegraph’s report, said most companies are likely to remain “highly cautious” about investing in exploring for fresh oil reserves.
“Global investment in conventional exploration and appraisal will be around $37bn in 2018. This will be 7pc less than 2017 spending of $40bn, and over 60pc below its 2014 peak,” he said.
The downcast outlook emerged as oil prices edged above $68 a barrel for the first time since the market hit twelve year lows in early 2016. In the wake of the downturn, companies were forced to slash spending, and many smaller players remain wracked by debilitating debts.
The research has revealed that the brunt of the slowdown will be among independent oil companies, while oil majors are expected to trim their spending by only 4pc from last year.
“Competition for the best opportunities will be fierce. Industry investment and well counts will remain stubbornly low,” he added.
Many cash-strapped oil companies have opted to merge with rivals or snap up fields which are already producing oil in order to leap-frog the eye-watering expenses of the exploration and development phases.
Those which are willing to plough cash into searching for new reserves are targeting only the lowest cost opportunities, leaving a narrow range of offshore oil basins to choose from.
“This raises the spectre of sharper competition eroding margins – a threat not seen since 2014,” Latham added.
The “deepwater sweet spots”, which offer rich reserves at a breakeven price of $50 a barrel, are mainly found along the edges of the Atlantic.
“Basins are a mix of the proven – such as Guyana, Mauritania, and the US Gulf of Mexico – and unproven frontiers, including Nova Scotia, South Africa, and Namibia,” Latham said.