What industry leaders expect for 2024

It has been a rather peculiar year for the upstream industry during 2023, particularly in the U.S. Indeed, while the post-pandemic recovery has continued for a third year, it has had some noticeable inconsistencies. For instance, the U.S. rig count has averaged just 690.1 for 50 weeks in 2023, down 4.6% from 2022’s average of 723.0, yet the country’s oil production has risen to 13.2 MMbpd from the 2022 average of 11.9 MMbpd. That’s a 10.9% increase.  

Some industry sources think that operators have been working on completing DUCs, and this has impeded the drilling rate. But that’s only partially true. The U.S. EIA tracking of DUCs shows that while their numbers have been reduced year-over-year in Appalachia, the Permian and Eagle Ford, these reductions have been offset by increases in the Niobrara, Haynesville and Anadarko. Overall, the U.S. DUC total in November was nearly identical to a year earlier. Meanwhile, there is no doubt that technology advances continue to provide additional efficiency gains, thereby reducing the number of rigs needed to drill a specific number of wells. 

In Canada, drilling is up 2.7%, with an average 178.4 rigs running over 50 weeks vs. the 173.7 average for 2022. According to EIA figures, Canadian oil production was averaging 4.68 MMbpd in August, up 3.1% from the 2022 average of 4.54 MMbpd. So, in that country, production growth is very much tracking the drilling pace. 

Internationally, drilling during 2023 has averaged 720.5 rigs per month through November, up 11.5% from the 646.3-rig pace of 2022. This confirms the trend that we have seen, where drilling activity has shifted from North America to other parts of the globe. However, in August, global output of crude and condensate was just 80.7 MMbpd, down slightly from 2022’s average of 80.8 MMbpd, as well as the February 2023 peak of 82.5 MMbpd. This can be explained by the fact that for a good part of this year, OPEC+ has been holding a steady portion of its output off the market to prop up prices. 

Spending indicators. The inconsistencies continue when one looks at various spending indicators, as tracked by our friends at Evercore ISI. Despite U.S. drilling being down, the country’s upstream spending, according to Evercore’s survey group, actually rose 19.7% to $112.0 billion. In Canada, while oil production barely increased, operator spending in this group supposedly has risen 17.0%, to $18.8 billion. And outside the U.S. and Canada, international spending has jumped 8.0% higher, to $359.3 billion. For 2024, all indicators show a lower gain than the figures achieved in 2023. However, international spending will be healthier, with a 6.0% gain expected, while the U.S. and Canada will lag behind, with increases of just 2.2% and 2.3% predicted, respectively.  

Factors at play. It is likely that the 2023 wells drilled total in the U.S. will be below the 2022 figure. This is in spite of the aforementioned 19.75% hike in upstream spending among Evercore’s survey group. There may be a number of reasons for this, including operators’ and drilling contractors’ continued difficulties in hiring personnel, which limits any growth in projects. Additional factors seem to include equipment and service prices that remain inflated; low natural gas prices; anti-oil-and-gas attitudes among some firms in the financial community (thus impacting lending); continued fiscal discipline among some operators; ever-present uncertainty on the regulatory front, especially on the federal level; and some lingering supply chain issues.  

In contrast, international activity outside the U.S. and Canada appears to be headed to a 2023 finish that is mostly in line with Evercore’s estimate of an 8.0% increase in capital spending for the year. The Middle East remains particularly active. 

Advisors’ perspectives. As occurs every year at this time, our core group of advisors on World Oil’s Editorial Advisory Board have attempted to sort out what has occurred in the global E&P industry over the last 12 months while also doing their best to measure what may happen in the coming year. And while much of what is discussed focuses on ESG and sustainability topics, there is also a focus on what will become of unconventionals, as well as the noticeable renaissance of offshore and international activity.  

Indeed, one of our advisors says there is plenty of potential for unconventionals to be developed on a global basis. However, he is concerned that a host of environmental concerns and regulatory challenges will restrict efforts to harness that potential. Likewise, two of our advisors see good opportunities, geologically and technically speaking, to develop additional, substantial reserves offshore the U.S. and UK. But those assessments are tempered by the prospect of unpredictable and uneven governmental policies and regulatory enforcement. 

Additional advisors worry about the challenges posed by the green movement and its governmental advocates in a number of countries. There are concerns as to whether the industry is able to sufficiently make its case for maintaining robust oil and gas development in the face of what can only be described as hostile groups in North America and Europe. And, of course, as one advisor discusses so eloquently, there is the ever-present challenge of maintaining sufficient employment levels in the industry to accomplish all the projects underway and contemplated. How to attract younger workers may, indeed, be job number one. 

In spite of these concerns, our advisors, as a group, see reasons for optimism that 2024 will be a somewhat better year than 2023 for the global upstream industry. As always, we invite you to read the following advisor perspectives for all the details.  

About the Authors

Kurt Abraham

World Oil

Kurt Abraham kurt.abraham@worldoil.com