Exploration isn’t in a down cycle, it’s in decline.

The industry data is clear: Traditional exploration and appraisal well counts are down sharply compared with the 2000s and early 2010s. In response to sparse traditional opportunities, capital moved to unconventional development, portfolios were high-graded, and spending was restrained. Even as production has continued to grow, conventional reserve replacement fell from 30%–40% in the 2010s to roughly 10%–20% in the 2020s (see Figure 1).

In exploration, technical success means proving the subsurface concept and finding hydrocarbons at a meaningful threshold; commercial success means finding resources that can compete for capital and reach an end-market profitably. Over the past decade, technical success rates have held up—and in some cases improved—as companies drilled fewer, more selective prospects. But the aggregate stability masks a heavily skewed distribution: A small number of basins are generating most of the resource. In frontier exploration, less than 5% of play tests have delivered over 60% of discovered resource. For companies hoping to follow play openers—a strategy that historically was deemed prudent—the data is brutal: 90% of resources in plays opened since 2010 went to companies that already held acreage when the play opened. Fast-followers got 10%. The lesson is simple and uncomfortable: The advantage belongs to the play opener or early acreage holder, not the fast-follower.

Figure 1

The skew in technical success is compounded by a second issue: Too much discovered resource is failing to convert into advantaged, investable supply (see Figure 2). In too many cases, the constraints that ultimately killed a project—weak fiscal terms, no route to market, inadequate infrastructure, engineering limits—were identifiable before the well was sanctioned. Some wells may have served a strategic purpose, such as acreage retention or data acquisition. But too often, operators knew the barriers—or could have known—and drilled anyway. Capital deployment pressure, acreage obligations, and thin prospect inventories too often overrode the underlying quality of the opportunity.

Industry data shows NOCs leading activity and volume additions, while many international players remain at materially lower levels of conventional exploration. But those activity levels are not directly comparable. NOCs often operate with different resource-access advantages, fiscal positions, economic thresholds, and strategic mandates. What is commercial for an NOC may not be advantaged, competitive, or investable for an IOC. And as more NOCs explore beyond their domestic basins, those advantages may not travel. Together, these issues define the portfolio stress test now facing the sector: who can rely on their existing inventory, for how long, and who must rebuild capability, enable resources already in hand, or acquire new positions to close the gap.

Figure 2

M&A defers the problem of underdiscovery

Once existing inventory matures, the sector's reserve replenishment challenge cannot be deferred. M&A can delay the onset for individual companies, but it won’t solve the system problem because the same depletion arithmetic sits underneath nearly every portfolio.

At best, M&A redistributes scarce inventory; by itself it does not discover new resources. But selective M&A can bring more than barrels: advantaged acreage, proprietary data, technical expertise, and exploration teams that help accelerate a broader rebuild. The risk is treating acquired resources as a substitute for organic renewal—or absorbing acquired capability into the same deteriorating operating model. The response must combine selective M&A, organic renewal, and deliberate choices about winning positions, and a plan to preserve the capabilities that make those positions valuable.

The value gap between discovered barrels is widening. That changes what a winning position looks like. Tighter logistics, fragmented geopolitics, and uneven market access mean that getting a barrel to market profitably matters as much as finding it in the first place. The test is not just whether the geology works—it’s whether the resource can become advantaged, investable supply. That question should shape not only how companies rank prospects below ground, but where they choose to play above it.

The harder problem is organizational

The retirement wave that many expected in exploration did not arrive as one visible event. It withdrew as a receding tide. Years of unconventional focus, traditional skill downsizing, delayed hiring, selective exits, and lower exploration ambition gradually exposed how much experience had already left the system. In many companies, the bench of basin openers, play-based thinkers, subsurface integrators, and prospect champions is thinner than leadership assumes.

Strategic choices and shareholder commitments also made exploration the easiest dollar to not spend. Capital was redirected toward short-cycle barrels (e.g., lower 48 unconventionals), project execution, balance-sheet repair, and shareholder distributions. Individually rational at the time, those choices collectively left many organizations needing to rebuild exploration capability and replace reserves simultaneously.

This is why the real challenge is not simply “spend more.” Putting more money into an inefficient or ineffective system can actually make things worse. If you’ve spent your first billion on the best prospects, the second billion is unlikely to yield better results. The goal must be to reconstruct the end-to-end exploration system: basin choice, acreage capture, prospect generation, commercial framing, governance, and apprenticeship—as well as actively developing resources already in hand through de-risking, technology, and partnerships.

Apprenticeship is the hardest part to rebuild—and the most important. It is not simply a question of technical development. It means re-establishing a culture of risk-taking and prospect ownership that many governance models have suppressed. Companies need to match that cultural reset with a governance reset. Operating models need to be recalibrated so technical maturation and commercial qualification happen together, with a market-back view of profitability shaping pursuit selection from entry through prospect sanction—not applied as a screen at the end.

An integrated response spans the entire exploration system—from portfolio stress testing and capability rebuild to governance reset and selective M&A (see Figure 3).

Choose where you can win, then commit

Rebuilding exploration requires explicit choices about where a company can compete, how much risk it is willing to carry, and how exploration fits alongside the rest of the portfolio. 

Companies need a ruthlessly objective, global view of their portfolio—stress-tested with classical analytics, but also modeled against future exploration scenarios to calibrate how and where to play and what signals would trigger a shift in emphasis.

The critical step is to define a clear “right to win” in exploration. Not all companies can succeed across all exploration types—and most should not try:

• Play openers and frontier exploration offer disproportionate value but come with low probabilities of success, long cycle times, and high capital at risk. This is a “play to win” strategy that requires deep technical benches, balance sheet strength, and the ability to carry multiple failures.
• Infrastructure-led exploration (ILX) and basin extension offer higher probability and faster cycle times but are inherently capacity-constrained and unlikely to fully close reserve gaps on their own.
• Portfolio-led strategies (including M&A and farm-ins) can reshape exposure and buy time, but do not replace the need to create new resources over the long term.

The implication is not to choose one path exclusively, but to build a deliberate mix aligned to capability and financial capacity. Companies without the technical depth or risk tolerance to pursue frontier plays should be explicit about that choice and lean into advantaged basins, partnerships, and selective M&A. Conversely, those seeking material reserve addition must accept the volatility that comes with pursuing new plays—and fund that ambition appropriately.

Rebuilding capability, from basin entry to commercial muscle, is as central to this agenda as portfolio choice. And governance and capital allocation must reflect both. Screening should integrate technical and commercial perspectives from the outset but also recognize uncertainty: high-impact opportunities should move forward with appropriate pacing, not be screened out prematurely by deterministic hurdles. At the same time, opportunities with no credible path to commerciality should be stopped early, regardless of sunk cost or acreage pressure.