(The opinions expressed here are those of the author, a

columnist for Reuters.)

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BP Bumerangue discovery in Brazil could hold over 2

billion

barrels of oil reserves

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Discovery comes as oil majors revive focus on exploration

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Concerns over long-term oil demand subside

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 ( XOM ), Chevron ( CVX ),

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 ( CVX ) 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)