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It will be another strong, profitable year for producers around the globe, especially those focusing on crude oil. Assuming that prices hold near $100/bbl or higher, this type of economic structure will support greater liquids and shale exploration in a number of international areas, just like it has done in North America. The relatively high price also supports large projects offshore.
Across the globe, high-profile deepwater projects grabbed the headlines last year. Yet, in terms of activity expansion, the real news was made on land. Significant drilling gains were registered onshore China, Russia, Kuwait and Venezuela, as well as onshore Abu Dhabi.
Drilling outside the U.S. totaled 56,321 wells last year, up 4.1%. This year, an equally satisfying forecast is on tap, with a 4.3% increase to 58,754 wells expected. Every region will attain some measure of increase, although Western Europe will struggle. Worldwide production was up 0.2%, to 73.874 MMbopd.
Offshore, the industry should have a strong year. In Brazil, Petrobras continues to work the pre-salt areas, hiking the requirement for rigs and investment. Northern Europe may be extensively explored, but large discoveries are still being made, as in the Barents Sea. Conversely, frontier areas around the world are becoming more intriguing, including East Africa, Sri Lanka and, despite some disappointments last year, Greenland, as well.
North America. Building on its recovery begun in 2010, Canada achieved another increase last year, gaining just over 2%, to more than 12,600 wells. Oil is driving activity in a big way not seen since the 1996-1998 period. This is particularly true in Alberta, where oil sand deposits now account for just over half of all Canadian crude production, which averaged 2.875 million bpd last year. For more details on Canadian E&P, please turn to the review article on page 75.
Southward, in Mexico, E&P activity last year remained almost even with 2010’s level. Just over 1,130 wells were drilled in 2011, and a small increase is expected this year. Nevertheless, oil production has decreased in recent years. Last year, production was down 1.6%, at just under 2.6 MMbopd. Sufficiently alarmed, Mexico in early 2011 held licensing rounds for performance-based contracts on oil blocks. Foreign firms will have no ownership rights over any oil they produce, but they should infuse Mexican fields with improved technology. Pemex hopes that the onshore Chicontepec project will be a major source of future production growth. For additional details on Mexico’s E&P sector, please see the feature article on page 81.
South America. Across the region, drilling will be up nearly 11% this year. This comes on the heels of a 6.3% gain last year. Regional oil production of crude and condensate was up 4.2%.
Leading the pack, and making news on several fronts, is Brazil. A number of new deepwater finds were made last year, but state firm Petrobras also ramped up activity onshore, where 74% of all wells drilled were oil completions. This year, the country will boost onshore drilling by a whopping 78%. Officials also expect to hike offshore drilling 24%, to 250 wells. Brazilian production was up 4.7% in 2011. So many offshore finds have been made in the last year, that they are too many to enumerate here. However, one of the most recent finds announced by Petrobras found “high quality” crude off the coast of Sao Paulo. Named Carioca, it may produce at 28,000 bopd.
To the north, in Venezuela, the Chavez regime made good on its promise to add rigs and increase activity. Drilling was up more than 18%, and the number of rigs jumped from 70 to 83. Some of that gain was due to the implementation of new contracts for development of reserves in the Orinoco oil belt. The drilling increase seems to have helped Venezuelan oil output, which climbed 4.4% last year. Last December, Eni signed an agreement with state firm PDVSA Gas to develop the 17-Tcf Perla field, in the Cardon IV Block of the Gulf of Venezuela, in 198 ft of water. Utilizing existing appraisal and delineation wells, Phase I development would install offshore platforms and initially produce 300 MMcfgd.
In Colombia, drilling was up 12% last year, and another gain of 5.6% is forecast this year. Indeed, rig activity set a record in 2011, with an average 64 units working, compared to 41 in 2010. Meanwhile, oil production was up 16.4%, averaging 914,000 bpd. State company Ecopetrol said it will aggressively acquire 12 additional land rigs, so that the firm can expand Colombia’s drilling program further.
The Zaedyus oil find made by Tullow Oil last September offshore French Guiana is sparking interest in that country and neighboring Guyana. Tullow's find was drilled in 6,500 ft of water and found 236 net ft of oil pay. In mid-2012, Tullow and two partners will undertake 3D seismic work and drill two additional wells. In Guyana, CGX Energy is drilling its first offshore wildcat in about 250 ft of water. To the south, Uruguay is attracting attention after the release of two reports last year that said the country holds significant amounts of shale gas. The U.S. Geological Survey and the U.S. Energy Information Administration estimated the shale gas reserves at 21.0 Tcf and 13.4 Tcf, respectively.
Western Europe. Several countries are finding it difficult to increase activity. Regional drilling was up just 2.6% last year. Activity this year will be nearly flat. Production fell 9.7%.
In the UK, oil production continues to decline. This decline can be traced to the overall maturity of British fields and diminishing prospects for new, substantial discoveries. Still, there is some exploration interest among medium independents, driven mostly by higher oil prices. A recent 12% increase in the Supplementary Corporate Tax by the British government is not helping. The offshore trade association, Oil & Gas UK, is greatly concerned about the tax increase. Commenting on a 2011 business review by analysts at Wood Mackenzie, Oil & Gas UK Economics Director Mike Tholen said the study “reflects the current diverse nature of the business in the UK, with investment strong in some areas but struggling in others. The review illustrates that the UKCS is not proving attractive for exploration activity...”
Over in Norway, the picture is a little brighter. Although drilling, overall, remains at a plateau, 22 new oil and gas discoveries were made in 2011. Sixteen were made in the North Sea. Last year’s investment level was relatively high, and the Norwegian Petroleum Directorate (NPD) expects it to remain at a high level over the next five years. In total, 54 exploration wells were drilled in 2011, up from 41 in 2010. According to the NPD, the Aldous/Avaldsnes discovery in the North Sea was confirmed to be among the five largest oil finds on the Norwegian shelf of all time. The directorate’s preliminary estimate for this find is about 1.8 billion boe.
Investment in Norway’s industry was expected to increase 40% from 2010 to 2012, and then grow moderately through 2016. Several field developments and new projects at older fields are behind this growth.
Overall production of oil and gas was marginally lower in 2011 than the year before. Oil output averaged 1.677 MMbpd, down 6.8% from 2010’s figure. Due to market conditions, somewhat less gas was sold than expected.
In The Netherlands, where oil production had slumped for a number of years, there was a rare turn-around during 2011. Output grew 40%, to 30,820 bopd from 123 oil wells. Some of this improvement can be traced to NAM’s redevelopment of Schoonebeek oil field. Discovered in 1943 and onstream in 1947, it was the largest onshore oil field in northwestern Europe. Early last year, after a 13-year hiatus, NAM resumed oil production at Schoonebeek, and the firm expects to produce a further 100 MMbbl to 120 MMbbl by 2035.
Eastern Europe/Former Soviet Union. In this combined region, 2011 was a very good year. Total drilling was up 8.0%. The smaller Eastern European nations gained 16.4%. This year, the entire region’s drilling should rise 7.1%. FSU countries outside Russia will be up 3.4%, and the Eastern European group will gain 8.3%. FSU countries other than Russia saw their oil output increase 1.2%, to 2.902 MMbpd. In the smaller Eastern European nations, oil output was up 1.1%, at 181,000 bpd.
It was a banner year for Russia’s upstream sector. Wells drilled in that country were up 10.4% at 6,178, the highest level in a number of years. Operators boosted development drilling 9.2%, to more than 59 MMft of hole, and they also increased exploration drilling 3%, to about 2.5 MMft of hole. This year, activity should rise another 7%. The big five—Surgutneftegaz, Rosneft, Lukoil, Gazprom and TNK-BP—accounted for 84% of all wells and about 81% of footage drilled. Russia's oil production and drilling volumes both reached post-Soviet peaks in 2010. However, close to 90% of Russian crude output comes from brown fields. Production volumes in brown fields suffer from lower flowrates in new wells, as reservoir pressures drop, and water cuts increase. Thus, more wells are needed each year to stem the decline.
Outside of Russia, the largest drillers among other FSU countries remain Azerbaijan and Kazakhstan. In Azerbaijan, state firm SOCAR boosted drilling 8.7% to 152,955 m (501,821 ft). Within that total, exploratory drilling amounted to 14,525 m (47,654 ft). Nevertheless, slippage in development project schedules remains a major threat to the health of the Azeri E&P industry. Oil output slipped below the 1.0-MMbpd mark last year, falling about 4% to 994,000 bpd.
Kazakhstan continues to make news with its development of Kashagan oil field in the shallow Caspian Sea. Work on Phase 1, the pilot production, should be completed by the end of this year, when output will begin at 75,000 bopd. Last year, Kazakhstan produced 1.579 MMbopd, up 3.5%.
Africa. The northern half of the continent saw great political and social unrest last year, yet the continent’s E&P activity was not affected significantly, save for Libya. While the region’s wells drilled were down 14% from 2010’s level, the vast majority of the difference was due to disruptions in Libya. The southern half of the continent continued roughly the pace of 2010. African oil production was down 14.2%. This year, regional drilling should improve 9.9%, to 1,480 wells.
Due to the overthrow of former leader Muammar Gaddafi, Libyan E&P activity came to a grinding halt, late in first-quarter 2011. By our estimates, just over 30 wells were drilled before work was stopped. Now, as the new government takes control in Tripoli, activity is resuming. The situation should be nearly normal by the end of 2012.
Meanwhile, the southern half of Africa had another good year. Nigeria and Angola prospered from deepwater activity—and that pace will continue this year. At least 10 field projects offshore Nigeria are set to go onstream during the next four years. Last August, Total began oil production offshore on Block 17 at Pazflor field. Output is ramping up to 220,000 bpd. In addition, BP’s development of the PSVM fields should finish shortly, with output slated to build to 150,000 bopd.
Middle East. Activity in this region continues to set records. Another all-time, regional high for wells drilled was reached last year at 2,540. This year, activity will jump another 5.1%, to 2,670 wells. Regional oil production increased 4.8%.
Abu Dhabi is moving forward with new field developments, both offshore and onshore. Of particular interest is the Satah Al Razboot oil field development offshore, which will go onstream in 2016, and the development will feature two artificial islands. Thus, drilling in the emirate will remain at a high level.
In addition to expanding capacity at existing fields, Kuwait last year drilled the first natural gas well in Dorra field. Dorra sits offshore the Neutral Zone that Kuwait and Saudi Arabia jointly administer, and the two countries are fast-tracking its development. However, Iran is disputing the project. Shell continues to work with Kuwait Oil Company to develop the Jurassic strata in fields along the Kuwait Arch. The firms will construct an early production facility (EPF) near Al Jahraa, Kuwait. The EPF will have a capacity of 150,000 bpd of sour crude produced from 34 wells in Raudhatain, Sabriyah, Dhabi, Northwest Raudhatain, Umm Nigah and Bahra oil fields. The project should complete in 2014.
Meanwhile, Saudi Arabia will boost both development work and exploration further. Saudi Aramco said that it is looking to increase its drilling rig count this year to boost natural gas and oil output from Manifa field, as well as to maintain output in other fields. Dr. Sadad Al-Husseini, a retired executive vice president for Saudi Aramco, told Bloomberg Businessweek that the firm will drill for gas onshore in northern Saudi Arabia, as well as at Hasbah field in the Persian Gulf. At some point this year, the company hopes to have 50 rigs drilling for oil, 50 for gas, and 15 for exploration, plus 30 workover rigs. Thus, drilling in the Kingdom is expected to rise 17.3%, to at least 475 wells. Production last year averaged 8.7 million bopd, up 6.1%.
Far East/South Asia. Although activity in this region has hit a plateau, it was still another stout year for E&P projects. Drilling rose 2.5% last year, and a 3.1% increase to 27,436 wells is forecast this year. Oil output was off slightly at 6.927 MMbpd.
China. Another drilling record appears to have been set by China. The country drilled an estimated 24,350 wells in 2011, an increase of 746 wells, or 3.2%, over 2010’s figure. Determined to boost reserves and output, Chinese companies have focused E&P activity on the offshore areas of Bohai Bay and the South China Sea, as well as onshore fields in western interior provinces, such as Xinjiang, Sichuan, Gansu and Inner Mongolia. These efforts are paying off for the country, as engineers once again squeezed out a production increase. Countrywide output averaged 3.875 MMbopd, up 2.2% from 2010’s level.
Interest remains high in India, where the ninth round of New Exploration License Policy auctions took place last March. This round attracted 74 bids for 33 of 34 blocks. The country must still address concerns by foreign operators that future reserve levels for exploitation may be limited. Nevertheless, drilling was up 6.5% last year to 428 wells. A 7.5% gain to 490 wells is forecast for 2012. India’s oil production averaged 705,000 bpd.
Indonesia remains desperate to resuscitate its crude production, and the government has introduced policies aimed at increasing upstream investment. However, upstream investment remains risky. Licensing rounds in 2009 and 2010 were disappointing. Production fell another 5.4% to 906,500 bopd. Drilling was flat at 951 wells, but an increase of nearly 15% is on tap for this year. For details on Indonesian deepwater activity, please see the regional report on page 90.
South Pacific. Regional drilling was up 9.4% during 2011, and another mild increase is expected this year. Oil production was down 11.8% at 558,200 bpd.
The prime area for Australia’s new oil exploration has moved to the deepwater Timor Sea. Nevertheless, the Carnarvon basin offshore Western Australia remains the busiest area as far as overall drilling and development work. Drilling across Australia jumped 16.5% higher last year, boosted by onshore work. A gain of 4.9% is expected this year. After a recent peak in drilling during the past decade, several large discoveries are being developed and put onstream. The Pyrenees (BHP-Billiton) and Van Gogh (Apache Corp.) projects offshore Western Australia, which went online in 2010, will increase oil exports by 7%. The Kipper and Turum oil fields in the Gippsland basin, offshore southeastern Australia, should start up this year at a combined 20,000 bopd. The country needs all the boost to production that it can get, as output fell sharply last year, losing 15.3%, to 415,000 bopd.
In New Zealand, drilling remains in a narrow range of 40 to 45 wells annually, with about half to two-thirds onshore. Production, which had improved to a high of 58,729 bopd (including condensate) in 2008, has fallen steadily since then. Last year output lost another 8.1%. Federal officials are doing all that they can to encourage operators to increase exploration activity. To extend the life of New Zealand’s oldest gas fields, Maui and Kapuni, Shell Todd Oil Services will invest more than $100 million in a new exploration/development program. 
| Forecast of 2012 drilling outside the U.S.* |
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| World crude/condensate production by countries, 2011 and 2010* |
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| Forecast of 2012 offshore drilling worldwide* |
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