Exploratory Well

Key Takeaways

• Exploratory wells are drilled to locate proven reserves of recoverable oil and gas, offering insights into reservoir pressure and productivity.
• Advancements in technology and data analytics have enhanced exploration strategies, reducing costs and expanding offshore drilling prospects.
• Exploration companies often use the "full cost" accounting approach, capitalizing all expenses, contrasting with the conservative "successful efforts" method.
• Offshore exploration costs are high, with expenses reaching up to over $100 million per well, making technological efficiency crucial.
• Get personalized, AI-powered answers built on 27+ years of trusted expertise.

What Is an Exploratory Well?

An exploratory well is a deep test hole drilled by oil and gas exploration companies to locate reserves of recoverable gas and oil. These wells are the first step in identifying new oil and gas resources, whether onshore or offshore.

Once prospective areas are identified using seismic data, exploratory wells help gather detailed geological information about rock and fluid properties, reservoir pressure, and productivity. If successful, this leads to further drilling of development wells to extract oil or gas.

Learn how exploratory wells work, their importance in the energy sector, and examples of where these wells are being drilled around the world.

Exploratory Wells Explained: Insights and Industry Trends

The global energy sector has rebounded slightly toward the end of the 2010s after slashed exploration at the beginning of the decade, though it is unlikely exploration will return to peak levels.

The drop of conventional exploratory drilling was caused by a structural shift in the industry toward unconventional resources, such as U.S. shale oil and gas, and as a response to the collapse in oil and gas prices in 2014.

Most frontier exploration is now offshore, where a single exploratory well can cost $150 million, and the success rate is about one in five. It typically takes several years before an exploratory well can be brought into production

Because proven reserves are almost as valuable as oil itself, exploration companies are becoming increasingly hi-tech and are investing heavily in data analytics and the Internet of Things. Drilling companies are gathering digital data directly from their wells.

Some exploration companies use the "full cost" accounting approach and capitalize all their operating expenses, regardless of whether they found any commercially viable oil and gas reserves or not. This inflates the balance sheet by treating expenses as assets and makes the company look more profitable than it really is. This compares to the "successful efforts" oil and gas accounting method, which is more conservative because it only allows those expenses associated with successfully locating new oil and natural gas reserves to be capitalized.

Examples of Exploratory Wells

In 2019, new exploratory wells are being dug in Papua New Guinea, Pakistan, Morocco, Egypt, the United Kingdom, and Mexico.

According to Rohit Patel, a senior analyst at Rystad Energy, "renewed optimism in exploration activities is anticipated in 2019, with operators from various segments aiming for multiple high-impact campaigns—both onshore and offshore—in essentially all corners of the world. These include wells targeting large prospects, play openers, wells in frontier and emerging basins, and operator communicated high impact wells."

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