The average return on exploration costs for conventional hydrocarbons in the past three years was just 15 per cent, assuming oil prices remain at $70 a barrel in real terms, according to a study by energy consultancy Wood Mackenzie.
A similar analysis by the firm in 2005 showed this level of return could be achieved with an oil price of just $30 per barrel in real terms.
Wood Mackenzie says costs per well drilled have risen by 60 per cent since 2004. It sees this trend continuing, further diluting returns.
As well as costs, a recent tightening in contract terms taken by host governments is expected to hit oil companies when licences negotiated in the 1990s expire.