Over Half of 2020's Licensing Rounds Could be Canceled
More than half of the world’s planned licensing rounds are likely to be canceled this year due to the combined effect of the COVID-19 pandemic and the ongoing oil price war, a Rystad Energy impact analysis forecasts. New licensed offshore acreage is likely to fall by about 60 percent and onshore acreage by 30 percent compared with 2019 levels.
This year was slated to be another remarkable year for exploration with about 45 countries launching at least 52 lease rounds, about 60 percent of them in offshore areas. The decline in the expected number of lease rounds compared to last year’s 69 was not a sign of fewer countries offering new licenses, but a result of several countries offering multiple rounds in 2019, including Brazil, Ukraine, India and the U.S.
In its analysis, Rystad Energy has evaluated the rounds and distributed them in three categories: likely, tentative and unlikely to take place.
“The unlikely upcoming lease rounds represent around 54 percent – a worrisome sign for global exploration,” says Rystad Energy’s senior upstream analyst Aatisha Mahajan. “A number of factors together make these rounds unlikely to go ahead, including the oil-price drop, a global cut in investments by almost 20 percent, a lack of skilled manpower due to the COVID-19 pandemic, fiscal regimes that are proving unattractive in the current environment, and a lack of interest among potential participating companies.”
In Europe, unlikely rounds are those of the U.K., Ukraine, Romania and Germany. In South America, rounds in Colombia, Brazil, Ecuador and the Dominican Republic may not go ahead, while in Asia rounds in Thailand, Uzbekistan, Myanmar and the UAE may not go ahead. New Zealand is also in doubt, and in Africa, licensing rounds in Ivory Coast, Algeria, Tanzania, Senegal, Somalia, Liberia, Ghana, Equatorial Guinea, Angola, South Sudan and Nigeria may also be put on hold.
Licensing rounds in the U.S., Suriname, Egypt, Russia and China are considered as tentative. The U.S. recently concluded its lease round 254 in the Gulf of Mexico with digital technology playing a big role and the sale process was streamed live.
Suriname is developing into a hotspot for global exploration with two major discoveries in recent months. Riding on these successes, the South American nation might be able to go ahead and conclude a successful round. However, economics will play a role depending on how the future oil price is formulated for the participating companies.
Egypt is a very prospective region and has open-door licensing, under which we might witness the willingness to participate from companies with significant free cash flow, says Mahajan. Russia and China both have local players as the common bidders in licensing rounds and might therefore still go ahead with their scheduled rounds.
Licensing rounds that are likely to go ahead include countries such as Malaysia, Trinidad and Tobago, Norway, India, Lebanon, and Canada. These countries look well on track to continue their lease rounds as scheduled, although the current industry volatility could cause slight delays.
Eight of the initially expected 52 licensing rounds have already been completed, in Barbados, Canada, the U.S., Gabon, Pakistan, Oman, Australia and Republic of the Congo.