Repeats story with no change

By Ron Bousso

LONDON, Sept 15 (Reuters) - BP's recent discovery of a giant oilfield offshore Brazil has reignited investor enthusiasm, echoing the aggressive exploration era two decades ago when companies were thirsty for resources amid fears the world was running out of oil.

The announcement of the Bumerangue discovery, described by CEO Murray Auchincloss as BP's most significant in 25 years, sparked an 8% surge in the company’s London-listed shares in August, outperforming sector peers.

The discovery signals that concerns that oil majors might be left with stranded assets in the energy transition may be receding.

If fully developed, the enormous field could prove transformational for the beleaguered $93 billion company, which in recent years has faced leadership turmoil, strategic drift, persistent takeover speculation and pressure from activist investors.

BP will need months to fully appraise Bumerangue, but initial results revealed a 500-metre hydrocarbon column in a high-quality pre-salt reservoir that could span over 300 square kilometres (115.8 square miles).

Claudio Steuer of the Oxford Institute for Energy Studies estimates the field could hold 2 to 2.5 billion barrels of recoverable oil equivalent, based on nearby fields. That, in turn, could translate into a massive offshore development capable of producing roughly 400,000 barrels per day for decades, according to Steuer. And BP, with a 100% stake, stands to reap a huge windfall from this find.

This discovery reflects that fact that BP is now redirecting cash and talent upstream, after years of downsizing its exploration and reservoir engineering teams. It plans to boost annual upstream spending by 20% to $10 billion by 2027 and keep production steady at 2.3–2.5 million barrels per day through 2030.

BP appears to be pivoting back toward early 2000s strategy – and it's not alone.

STRANDED NO MORE?

For two decades, reserve size was a key investor metric for energy companies. To grow reserves, ‘Big Oil’ firms had to ramp up exploration spending, which grew from $5 billion annually between 1995 and 2005 to a peak of over $35 billion in 2013, according to consultancy Thunder Said Energy.

But the rush slowed in the mid-2010s as shareholder returns were eroded by soaring development costs and falling oil prices.

Appetite for exploration was further dampened by the 2015 Paris climate agreement and subsequent forecasts of slowing, if not shrinking, oil demand in the coming decade.

Companies - and investors - began to fear that reserves could become stranded assets never to be tapped and to ultimately become worthless.

Consequently, exploration spending by ExxonMobil, Chevron, Shell, BP, and TotalEnergies dropped below $10 billion annually in recent years, and companies began to downplay reserve size.

Today, Western oil firms hold reserves equivalent to 7 to 13 years of current production, down from 12 to 17 years a decade ago. BP’s reserves stood at 6.25 billion barrels of oil equivalent at end-2024, 8% lower than the previous year and equal to 7.25 years of production, compared with 15 years a decade ago.

Now, of course, the tide seems to be turning, as the excitement around the Bumerangue discovery indicates.

Investor sentiment is shifting, and years of underinvestment mean that Western majors must now replenish reserves simply to maintain output.

REDIRECTING RESOURCES

Companies are today directing increasing resources to exploration, a high-risk, high-reward activity. Chevron CEO Mike Wirth said in August that he was "not happy" with exploration results in recent years and as a result the U.S. company is increasing spending to search for new resources both around its existing production and in new, frontier basins such as Suriname, Namibia and Egypt.

"There has been a pickup in activity, starting with licensing rounds. That's the leading indicator, for exploration activity," said Rystad chief analyst Per Magnus Nysveen.

Rystad estimates the world holds 1.5 trillion barrels of potentially recoverable crude, including undiscovered oil, equal to total global consumption from 1900 to 2024. That sounds like a lot, but extracting those potential resources will require huge investment.

Moreover, uncertainty over long-term demand complicates matters. The International Energy Agency expects demand to plateau by 2030, while OPEC sees growth continuing through 2050. Much depends on how quickly the energy transition progresses, particularly in major markets like China.

However, there could also arguably be a floor under demand moving forward, given the renewed focus on energy security that began following Russia’s invasion of Ukraine in 2022 and the expected spike in overall energy demands driven by the artificial intelligence boom.

Debate about these timelines will continue, but one thing is certain. For BP, the Bumerangue discovery is coming at just the right moment.

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(Ron Bousso, Editing by Louise Heavens)

((ron.bousso@thomsonreuters.com +447887626565))