2014 FORECAST – INTERNATIONAL DRILLING & PRODUCTION
Despite slowdown concerns, fundamentals remain strong
Though operators expect a good year, most are taking a more careful look at E&P budgets, seeking both improved efficiencies and lower costs.
The oil and gas industry is experiencing its fourth year on an E&P plateau. Looking farther ahead, however, there is a growing sense of apprehension about an inevitable slowdown in what has always been a cyclical industry. However, economic fundamentals are in place for another strong year, albeit at slightly lower crude oil prices. In its January 2014 report, the International Monetary Fund (IMF) predicted that the world economy will emerge out of a long recession, with a growth rate of 3.7%. IMF also expects the U.S. economy to grow 2.8% during 2014. This overall economic growth should increase the demand for petroleum, gas and liquid fuel products.
Barclays’ Global 2014 E&P Spending Outlook suggests that operators surveyed will spend $723 billion on E&P budgets in 2014, a 6.1% increase from 2013. This compares to $496 billion in 2013, which was up 10% from 2012’s level. While worldwide growth in crude and condensate production appears flat or up only slightly at 75.41 MMbpd, the results are skewed by sharp drops in politically troubled areas such as Syria and Libya. Backing out declines in these countries, world production shows a healthy increase in 2013.
Given these indicators, and results from World Oil’s surveys of operators and international petroleum agencies, we expect that global drilling outside the U.S. should increase 2.4%, to 60,439 wells this year, while offshore global drilling will gain 4.4%, to nearly 3,200 wells.
|Forecast of 2014 drilling outside the U.S.*
NORTH AMERICA. As was the case last year, oil sands and tight oil are driving investment in Canada. And, according to figures supplied by the Canadian Association of Petroleum Producers (CAPP), gas, particularly shale gas, may be about to start a slow comeback. CAPP says that gas wells made up only 13% of Canadian drilling in 2013, but that share is expected to rise to 16%, according to CAPP data. Indeed, the number of gas wells drilled in Alberta is forecast by the provincial authorities to rise 34%, to between a quarter and a third of the market, up from one-fifth in 2013. Offshore, activity in East Canada is expected to rise 29%, as development work picks up.
In Mexico, state oil monopoly Pemex plans to expand its exploration budget for 2014. The operative variables however will remain the same, which means that Pemex plans to maintain production at current levels by increasing exploration and drilling unconventional wells in some areas of the country, as well as increasing the total number of producing wells during 2014.
The company’s goals for 2014 are to drill 67 exploratory wells with a success ratio of 40% and 455 production wells with a success ratio of 95%, equivalent to the achievements of 2012. Hydrocarbon production for 2014 is planned to be: 2.52 MMbopd, 6.69 Bcfgd, and 38,400 bcpd.
One of the strategic goals of Pemex for 2104 is to increase production of hydrocarbons by implementing better practices for the management of declining oil fields, development of heavy crude oil fields and accelerated production for new fields. The Pemex total budget for 2014 is 521.676 billion Mexican pesos (US $39.06 billion).
Pemex Exploration and Production will have a budget of US $26.130 billion. Pemex’s production goals for 2014 are to maintain production levels in range between 2.5 and 3.0 MMbpd, and natural gas production between 5.7 and 6.2 Bcfd.
SOUTH AMERICA. The region has been on an impressive pattern of growth, which will now enter its fifth year. We see no end to the steady regional growth, despite some minor pockets of problems. We forecast the region’s drilling to increase 3.1%, to over 4,100 wells. Offshore activity will grow at a faster rate of 8.5%, to 230 wells. One of the drivers of activity is a renewed emphasis on exploration, particularly in Bolivia, Brazil, Peru and Venezuela. There will also be a return to exploration drilling offshore the Falkland Islands after a one-year hiatus. At least one test is scheduled, and perhaps one or two more.
In Brazil, state oil company Petrobras expects offshore production from platform P-58 in the Balenas offshore field to be around 180,000 bopd during the first quarter of 2014. Production is set to come online during the second quarter at the P-61 platform in Papa Terra field at 140,000 bopd. The P-62 platform in the Campo Roncador production field is also expected to produce 180,000 bopd in the second quarter. Wells in Sapinhoa Norte field will begin production in the fourth quarter of 2014, using the FPSO Cidade Ilhabela, as will Iracema Sul field.
Petrobras’ 2013-2017 Business and Management Plan sets a goal of 2.0 MMbopd for 2013, increasing to 2.75 MMbopd. Other goals include reducing the time that it takes to drill a well from 134 days to 70 days, and also reducing the days that it takes to get a well into production. Petrobras has an 82% success rate with wells drilled in the pre-salt offshore fields.
Regarding Venezuela, World Oil has had direct contact from state oil company PDVSA for the first time in 15 years, after an information gap that started when former president Hugo Chavez came to power, and has received estimated drilling numbers. Venezuela’s Plan de la Patria (state plan), passed by the National Assembly, sets production goals for crude oil at 3.3 MMbpd for 2014. This is a decrease of 17.5% over the plan formulated by PDVSA for 2014, which set production goals at 4 MMbpd. In January–November 2013, oil output amounted to 3.05 MMbpd. Natural gas production goals were set at 7.83 Bcfd for 2014. Gas output goals have been scaled back 1.6% over current levels, due to problems PDVSA are experiencing in extracting additional production from the Orinoco Belt, as well as to the natural decline of traditional wells in older fields. The only official data about drilling is the numbers published by PDVSA, which show 1,333 total wells drilled in 2013, and 1,484 wells planned for 2014.
In 2014, Colombia’s Ecopetrol S.A. plans to drill 20 exploratory wells, six appraisal wells and eight stratigraphic wells. Of the 20 exploratory wells, 13 will be drilled in Meta and Arauca in the eastern Llanos, two offshore on the Caribbean coast, two in Huila in the south and three in Cesar, Antioquia and Santander in the north. The exploratory activity includes seismic exploration over 8,460 sq km, as well as geological and geophysical studies, for a total expenditure of US$ 400 million. Ecopetrol also plans to go ahead with the development of unconventional resources, such as shale oil and gas, in the Middle Magdalena and Catatumbo, blocks by drilling nine stratigraphic wells, three exploratory wells and three pilot production wells.
The investments in 2014 are intended to increase the production of crude oil and gas, with a goal of 770,000-boepd average production for Ecopetrol.
In Ecuador, state petroleum company Petroamazonas predicts an average production of 322,000 bopd for 2014, similar to 2013 levels, due to an aggressive investment project in its existing oil fields and development of new reserves.
Petroamazonas plans to invest US$ 3.2 billion in 2014, US$ 200 million more than in 2013, and increase its reserves by 50 MMbbl, which it plans to immediately place into production. This production increase is due to a successful drilling campaign, which it has been carrying out with 30 operating drilling rigs and 28 workover rigs to rehabilitate existing wells. The company’s goal for new reserves was 35 MMbbl, but exceeded that number by discovering 70 MMbbl with the exploratory wells drilled.
The Ministry of Non-Renewable Natural Resources of Ecuador expects to produce 600,000 bopd for 2014.
In Peru, Minister of Energy and Mines Jorge Merino stated recently that Peru will increase oil production during the coming year by 10%, thanks to development of new oil fields discovered by Perenco and Gran Tierra Energy. Perenco began production of heavy crude in Block 67, in the Loreto area, in December, and Gran Tierra Energy announced, last year, an oil find in the Bretaña Norte 95-2-1XD well in Block 95, also in Loreto. Perenco produced 1,000 bpd in December 2013, and expects to increase production to 6,000 bopd in 2014 at Block 67. Gran Tierra Energy expects its new oil field in Block 95 to yield 40,000 bopd.
Bolivia’s state oil company, YPFB, has budgeted US $450 million for exploration in 2014, an increase of 65% over the exploratory budget in 2013.
Bolivia expects to produce 64.5 MMcfgd in 2014, which would be a 7.0% increase over 2013’s output. YPFB expects oil production in 2014 to reach 66,500 bpd. This increase in production will come from the extraction of natural gas associated with liquids, as well as condensates. YPFB will drill 18 wells during 2014 and also conduct seismic exploration in search of new oil and gas reserves.
BG and Chinese company, Sinopec, are conducting seismic exploration of the Madre de Dios River basin. The increase in exploratory activities is due to the increase in the exploratory budget by YPFB and its private partners. There are currently 104 exploratory blocks, for which YPFB has signed contracts for 53, and the firm is looking for international partners to explore the remaining 51.
|Forecast of 2014 offshore drilling worldwide*
WESTERN EUROPE. Outside of Norway, it has been another tough year for Western Europe. A combination of disputes over fracing regulations and a lack of exploration successes has put a damper on activity. Nevertheless, drilling last year climbed 6% higher, and we expect that level of wells to continue this year. Except for Norway and Austria, we predict small increases in the remaining significant players.
In the North Sea region, drilling, overall, will be about the same as last year. Activity along the Norwegian Continental Shelf grew during 2013 through wildcat drilling, with a high success rate from independents, such as Tullow Oil and Lundin Petroleum. Some operators, such as Marathon, are selling off their North Sea assets to focus on the U.S. shale sector. In January 2014, Norway announced the results of its 38th licensing round, with a record 65 licenses awarded to 48 operators.
In the UK, officials hope that the 28th licensing round will lead to an exploration revival on the UK Continental Shelf.
EASTERN EUROPE/FSU. As Russia goes, so goes the entire Eastern Europe/FSU region. Russia dominates the area, accounting for 84% of all drilling. Russian activity was up 4% last year, and another 1.7% gain is seen this year. Consequently, we expect the entire region to be up about 1.8%, as well, to more than 9,300 wells. Russian operators continue to push drilling levels higher, as they race to stay ahead of Saudi Arabia’s efforts to increase oil production. Last year, Russia led the world in crude and condensate output, averaging 10.4 MMbpd, up 1.3% from 2012’s level.
In addition, Russia was stung by the loss of its ranking as the world’s leading gas producer to the U.S. So, the country has embarked on an ambitious exploration program for both gas and oil, with the aid of international companies, such as ExxonMobil, Shell and Statoil. In early January, a Shell-Gazprom JV started drilling the first of five horizontal wells to assess the potential of Siberia’s Bazhenov formation, which may hold the world’s largest deposits of shale oil.
Elsewhere, activity was up slightly in Azerbaijan and will rise again this year. Kazakhstan’s attention remains focused on the mega-development of super-giant Kashagan oil field in the shallow, northeastern Caspian Sea. Last October, China National Petroleum bought an 8% share for roughly $5 billion, just as output began at 180,000 bpd. That figure will rise to 370,000 bpd over the next year.
In the smaller countries, including Romania, Albania, Poland, Hungary and Czech Republic, activity will be up moderately, at 4%. Poland is revamping its handling of oil and gas activity, to jump-start shale exploration, after bureaucratic blunders discouraged some operators.
AFRICA. Africa presents a mixed picture of opportunities and risks. In North Africa, concerns about governmental stability and security have slowed down activity in Algeria and Libya. Likewise, in Egypt, activity is running lower than it should, as operators wait to see if the military regime has staying power. Yet, in West Africa, with the exception of some onshore problems in Nigeria, there is great enthusiasm for E&P projects in a number of countries. Overall, we expect African drilling to remain relatively flat this year, at nearly 1,340 wells.
West Africa continues to be one of the world’s most active deepwater sectors. Everyone is familiar with the mega-projects offshore Angola and Nigeria, but exploratory efforts are beginning to pay off in some of the smaller, surrounding countries. In particular, excitement centers around Total’s pre-salt oil discoveries offshore Gabon, where drilling activity is at higher-than-normal levels.
Meanwhile, Houston-based Cobalt International made its fourth pre-salt discovery offshore Angola in January 2014. These discoveries confirm geological similarities with the pre-salt formations offshore Brazil.
East and Southeastern Africa has become one of the more interesting regions for growth. Exploration continues in Tanzania and Kenya, and plans are in place for an LNG development in Mozambique, with the participation of Anadarko and partners, and access to about 65 Tcf of natural gas. The first LNG cargoes are expected in 2018.
In Uganda, the government has reached a deal with Total, Tullow Oil and CNOOC to develop several oil fields. Full development could eventually total $15 billion. As previously outlined by Total, the companies will develop up to 1 billion bbl of oil-equivalent reserves in four license areas, and construct a pipeline to export a portion of oil to Asian markets. The firms expect that plateau production will average 200,000 to 230,000 bpd. Some oil will be verified for domestic use.
EASTERN MEDITERRANEAN. In the Eastern Mediterranean, offshore Israel and Cyprus in particular, is one of the world’s most dynamic offshore areas, for both exploration and development.
Last April, Noble Energy brought Tamar natural gas field, offshore Israel, online successfully, with all five of the subsea wells now producing at stable rates totaling approximately 300 MMcfd. Appraisal drilling continues at Noble’s giant Leviathan field offshore Israel, as well as the Aphrodite discovery offshore Cyprus.
MIDDLE EAST. The region should have another great year, and may break its drilling record yet again. We forecast a 5.9% gain to nearly 3,300 wells, and expect increases in most countries, except for Syria, Qatar and the emirate of Dubai.
Saudi Arabia is ramping up activity, while Iraq continues to build back its production capacity by drilling new wells and working over existing producers.
We expect an 11% increase in drilling throughout Saudi Arabia this year, while the kingdom’s oil production remains in a narrow band between 9.5 MMbpd and 10 MMbpd. Due to declining production from aging fields, the kingdom has embarked on a major drilling program that should total more than 500 wells this year. Saudi Aramco is now increasing drilling at Manifa, Khurais and Shaybah oil fields, to achieve a 12-MMbpd production capacity and a 1.5-MMbpd spare capacity.
|World crude/condensate production by countries, 2013 and 2012*
SOUTH ASIA. Drilling will be up slightly, to 652 wells, with all countries expected to have increases. Offshore activity will be up about 4%, and limited to India and Sri Lanka.
In India, state company ONGC and Japanese major Mitsui have signed a memorandum of understanding (MoU) for cooperation in exploration and production in India and other countries. The MoU provides for cooperation in conventional and unconventional oil and gas opportunities. This deal is the latest step by the Indian government in its efforts to boost production to meet the demands of its economy.
In Pakistan, the government has stated that overcoming the country’s energy crisis is a primary goal. Yet, oil production in Pakistan has fluctuated between 55,000 and 70,000 bpd since the 1990s. The country boosted production slightly last year, to 57,000 bpd, but oil consumption continues to grow and averages about eight times that amount. Again, the inability to attract foreign investment continues to hold the country back.
FAR EAST. Activity in the Far East will be up slightly this year, totaling nearly 29,000 wells. As always, the movements in Chinese activity tend to cloud the overall regional picture, due to the country’s dominance of statistics. Nevertheless, we expect some moderate gains in Indonesia, Malaysia, Myanmar, the Philippines and Vietnam.
Indonesia is having a particularly trying time right now. First, the government has had to investigate corruption problems in its oil and gas regulatory agency, forcing it to create a new agency called SKK Migas. No sooner was that agency on its feet, then its director said the country is running out of oil resources faster than most governmental officials think. He is calling for an “all-out” campaign of intensive exploration to boost reserves.
In the Philippines, some recent exploration successes are spurring further activity. Drilling will be triple last year’s level, and two-thirds of the wells will be exploratory, with a majority of them offshore.
China continues to wield tremendous clout in global oil and gas markets, as it looks outward and inward to narrow an ever-widening divide between consumption and domestic production. CNOOC, CNPC, and Sinopec will spend $13.07 billion this year on domestic offshore and onshore exploration programs, in an attempt to establish an annual drilling record.
Although CNOOC continues to spearhead an aggressive offshore drilling campaign, concentrating to a large extent on the Bahai Bay and perennially disputed South China Sea, roughly 85% of in-house production still flows from aging and rapidly depleting interior fields. To coax more oil out of these reservoirs, a host of enhanced recovery projects have been initiated over the past few years. Overall, we expect Chinese activity to remain relatively flat, due to some ongoing investigations this year into corruption at the three domestic companies.
SOUTH PACIFIC. The South Pacific region continues to see growth and development—this includes new discoveries onshore and offshore, and construction of LNG terminals and pipeline infrastructure. Despite a few recent problems, this remains one of the world’s strongest growth areas, and we forecast a 9.7% increase this year.
Australia is poised to become the world’s leading LNG exporter by 2020, but is struggling with mixed results from its giant LNG projects, due to cost overruns. Last April, Woodside canceled its Browse project despite progressing to the FEED stage. Chevron’s $15-billion+ Gorgon project is scheduled to come online in 2015 with three trains, and capacity of 15.6 million tons annually. The $29-billion+ Wheatstone project is scheduled to go onstream in 2016, despite Shell’s sale of its share to Kuwait. However, Shell remains on schedule for its Prelude FLNG project, with the vessel floated out of drydock in South Korea, in December.
In New Zealand, the government’s awarding of 10 exploration permits in December 2012 appears to be paying dividends. Officials there tell us that drilling will increase from 33 wells in 2013, to 46 wells this year. And 35 of those, equal to 76% of all drilling, will be for exploration. About two-thirds of these will be onshore.