Major oil giants invest billions in remote drilling areas to avoid risks from the Iran crisis

Source: Global Market Broadcast

ExxonMobil, Chevron, and other energy companies are intensifying efforts to find new oil and gas exploration areas—away from risks posed by war in the Middle East.

ExxonMobil recently announced a potential plan to invest up to $24 billion in Nigeria's deepwater oil field; meanwhile, Chevron has expanded its operations in Venezuela. BP has acquired oil and gas interests in offshore blocks in Namibia, and TotalEnergies has signed an exploration agreement with Turkey. According to energy research and consulting firm Wood Mackenzie on Thursday, in the coming years, major oil companies are expected to generate a combined $120 billion in value from exploration activities.

Iran's attacks on energy facilities, coupled with shipping disruptions in the Persian Gulf, have triggered a global scramble for oil, leading some Western oil companies to lose billions of dollars in revenue. However, surging energy prices have brought vast cash flows to the oil industry, enabling companies to venture into areas that were previously inaccessible or abandoned years ago. Previously, many drilling companies had slashed exploration spending to return more capital to shareholders.

"Never underestimate upstream operators' enthusiasm for opportunity. They'll say, ‘Man, if only we could do this or that,’" said a non-resident senior fellow at the Center for Strategic and International Studies and a former Chevron executive. "Now, they have the funds to do it."

During a Thursday call with executives from Exxon, Chevron, and other oil companies, U.S. Energy Secretary Jennifer Granholm and Interior Secretary encouraged all parties to continue ramping up oil production to address an impending supply gap and stabilize soaring oil prices.

U.S. crude futures are currently trading near $88 a barrel, up from just over $60 per barrel before the latest round of conflict broke out. On Friday, oil prices plummeted after President Trump and Iranian officials announced the reopening of the Strait of Hormuz, but Iran later stated that the strait had been closed again.

According to sources, oil companies are hoping to maximize production while prices are high, but will keep spending within current budgets and avoid taking on additional costs for large-scale investments.

Wood Mackenzie data shows that from 2021 to 2025, major global oil companies' combined annual exploration spending averages about $19 billion.

The sources also noted that industry executives are also looking at longer-term goals: securing ample oil and gas resources to ensure continued profitability into the 2030s. The Strait of Hormuz is a critical oil and gas transportation chokepoint between Iran and the UAE, and its closure has disrupted 20% of the world's daily oil and liquefied natural gas shipments.

Some Western oil companies operating in the Middle East have suffered heavy losses. Exxon stated that global oil and gas production fell by 6% in the first quarter due to the conflict. Its natural gas facility in Qatar was damaged, which is expected to result in an annual revenue loss of about $5 billion. Its partner, QatarEnergy, estimates that repairs could take up to five years.

Currently, the oil and gas industry is expected to shift its focus away from the Persian Gulf region. Just days before this round of conflict broke out, Chevron announced exclusive talks with Basra Oil Company for a stake in the West Qurna-2 oil field in Iraq—one of the world's largest onshore oil fields. However, analysts believe that Western oil companies are unlikely to sign any major deals in the Middle East until the conflict is fully resolved.

On the contrary, the economic fallout from this conflict is driving these companies to diversify their portfolios and disperse supply disruption risks worldwide. Energy companies are also striving to boost their reserves. Wood Mackenzie data shows that global oil producers need to find enough new resources to add 300 billion barrels to total reserves in order to meet global demand through 2050.

ExxonMobil, Chevron, Shell, BP, and TotalEnergies are closely watching new exploration blocks in Africa, South America, and the Eastern Mediterranean, which could help replenish their oil and gas reserves for the next decade.