OUTLOOK 2005: International
Worldwide Drilling

Buoyed by high prices, drilling rates are feverish

Global drilling outside the US is on a torrid pace, gaining 21% since 2002. This increase is remarkable, given that Western European E&P has been in a three-year recession. Looking back over the last 13 years to 1992 – the first year that semi-reliable data were available from the Former Soviet Union – drilling outside the US has gained roughly 50%.

Global drilling greatly outperformed our original 2004 prediction. The run-up in oil and gas prices propelled activity to a total (47,370) that was 3,150 wells more than forecast. This year, drilling outside the US will remain feverish, gaining 3.5% to 49,028 wells. Most areas will have moderate increases.

The forecast reflects continued high oil prices, prompted by growing demand and persistent instability in some key countries. Whether this forecast is met or exceeded will depend on costs and capacities. Several operators have said that exploration costs rose 10% last year, and some oil companies have jacked up drilling and completion costs in their budgets by 10%. Furthermore, steel prices for oil field goods have risen 10% to 15%, and rig and manpower shortages could be a problem in certain regions.

Offshore activity is forecast to increase 6%, or nearly twice the rate of global drilling as a whole. (see Global Offshore Drilling).

NORTH AMERICA
Drilling records are shattering in Canada. As indicated by data from the Canadian Association of Petroleum Producers, plus World Oil’s own survey, drilling set another record in 2004 at just above 22,000 wells. Oil prices, and the never-ending hunt for gas supplies, were the driver. In 2005, operators may bump up against capacity limits, but they should squeeze out up to 1,000 additional wells, for a 23,016 total.

World Oil’s survey of 31 Canadian operators, representing 55% of activity, indicates that drilling will rise 7%. This would translate to a national total of 23,188 wells. For more details, please see the Canadian article in this issue.

Mexico. In 2004, Pemex increased drilling 19%. A 10% gain to 775 wells is predicted for 2005, based on two factors. One is the expansion of gas output in the Burgos basin via multiple service contracts with foreign contractors. The other factor is the crude output expansion at Cantarell field complex in the Bay of Campeche. Offshore drilling was up 22% at 61 wells last year. A similar level is on tap for 2005. After spending $1.5 billion over several years, Pemex struck a deepwater find. The Nab 1 tested 1,200 bpd of extra-heavy (9°API) crude.

Others. State-run Petroleum Corporation of Jamaica has launched the island’s first ever exploration round of 26 offshore and onshore blocks. Bids are due by July 15, 2005. In Cuba, Pebercan found 100 million bbl of additional oil in offshore Block 7. The Santa Cruz 100 tested 1,300 bopd.

SOUTH AMERICA
South American drilling improved 10%, and should post the best regional gain this year at 11.2%. Leading the charge will be Argentina, along with Brazil and Venezuela.

Argentina. Drilling will rebound 21% to 1,500 wells after falling off modestly. The gain is due to ongoing field developments and production expansions by several operators. Most of that work is operated by Total Austral, Bridas, Pan American Energy and Repsol/ YPF. Total Austral will invest $160 million to increase output 6.4%, to 250,000 boed offshore Tierra del Fuego and in Neuquén province. Early this year, Repsol/ YPF struck gas in two separate wildcats in the Neuquén basin.

Venezuela. State firm PDVSA plans a 12% E&P budget increase. Compared to 2004’s level, the firm will spend $600 million extra, for a $5.6-billion total. The increase occurs while PDVSA is re-evaluating several operating agreements with foreign oil firms that PDVSA says have become too costly. The revolving door at the Energy and Petroleum Ministry continued, as strongman President Hugo Chavez appointed Bernard Mommer to replace Luis Vierma as deputy minister of hydrocarbons. Nonetheless, Venezuela’s drilling should rise 5.3%.

Brazil. Wells drilled declined 14% last year, split almost evenly between offshore and onshore activity. However, recent exploratory success should provide new field developments and boost wildcatting, all of which will fuel an 8% gain. State firm Petrobrás had new oil and gas finds in several basins, and ChevronTexaco struck a deepwater discovery in the Campos basin. Accordingly, Brazil’s proven reserves rose 2.7%, to 13.0 billion boe.

Colombia. Activity fell 8%, as officials had difficulty attracting investment. This year, hydrocarbons regulator ANH predicts only 25 exploratory wells, or less than half its target. Nevertheless, drilling may improve slightly. ANH noted that some wells slated for 2004 were delayed until this year, due to “equipment difficulties.”

Trinidad. Drilling was up to 195 wells in 2004, and that level should continue this year, said the Ministry of Energy and Energy Industries. BP and Repsol/ YPF made a significant offshore gas find, southeast of Trinidad. It holds about 350 million boe of reserves.

Others. In Suriname, state firm Staatsolie signed a deal with Maersk Oil for seismic work in offshore Block 31. Falkland Oil and Gas Ltd. was also slated to start a 2D seismic survey offshore the Falkland Islands. In Chile, state company ENAP will spend half of its $330-million capital budget on E&P, including a well at its Magallanes exploration project.

WESTERN EUROPE
A recovery is underway, and the region will be up 11%, at 624 wells. Even the UK has stabilized, thanks to improved, offshore licensing terms. Exploration is staging a comeback, equal to 25% of UK wells, half of the wells in Italy and France, and one-third in Germany and the Netherlands.

United Kingdom. After several years of decline, the UK’s upstream shows signs of improvement. The Department of Trade & Industry expects activity to equal or exceed last year’s 264 wells. Several factors are at work, including rig utilization that ended 2004 up 13%; changes in ownership of assets; operators’ oil price expectations; and more flexible licensing terms.

Norway. An exploration rebound is underway. Seventeen exploration wells were drilled in 2004, and the Norwegian Petroleum Directorate (NPD) expects that number to swell to 25 this year. Overall, NPD predicts a 10.5% increase to 158 wells. Last year, officials received eight applications for field development/ operations plans, so investment on the Norwegian Continental Shelf should remain high.

Fig. 1. Russian drilling may be limited by several factors this year. (Photo courtesy of Yuganskneftegaz.)

EASTERN EUROPE/ FSU
Russian drilling will level out, limiting Former Soviet Union growth. The remainder of the FSU is in better shape. Regionally, wells will be flat, at 5,610.

Russia. Officials said that exploration drilling was down 18% last year and not likely to improve, as operators exploit only the better fields. Drilling may also suffer from the merging of Yukos into Rosneft. Not all the news was bad. Slavneft, Lukoil and Surgutneftegaz all reported drilling increases, and Russia, overall, was up 16%. This year, a decline to 5,207 wells is forecast.

Other FSU countries. As predicted, drilling outside Russia held at 2003’s level. This year, a 4% gain is expected. In Kazakhstan, the ENI-led group developing giant Kashagan oil field in the Caspian Sea will build an artificial island at an estimated cost of $1 billion. In Azerbaijan, construction has begun on Phase 3 of the BP-led Azeri-Chirag-Gunashli development in the Caspian. It should go onstream in mid-2008. Georgia expects to quadruple activity to 15 wells, as Canargo Energy drills horizontal wells at Ninotsminda field.

Countries outside the FSU. A few mild gains are on tap, but few exciting prospects are available. Collectively, these countries’ wells will be up 8%.

AFRICA
Africa continues to gain work, but the pace has slowed, reflecting various countries’ inability to digest additional development projects in the short term. Activity this year should be up 6.4%.

Egypt. As the regional leader, Egypt recorded 265 wells last year. For 2005, a total 280 wells are forecast. State-owned Egyptian General Petroleum Corp. received 34 bids from operators for last May’s tender of 15 exploration blocks in several areas. Apache Corp. will use Overseas Private Investment Corp. funds to help develop several additional fields.

Angola. Drilling was off 17% in 2004, as operators slowed down exploration and concentrated on existing development work. However, state firm Sonangol will conduct onshore exploration in the Cabinda enclave, ending 30 years of onshore inactivity in that area. Test wells will be drilled in first-half 2005. Overall, drilling will recover to 2003’s level.

Nigeria. Drilling was off 21%, and officials took notice. They appealed to operators to come up with new offshore plans, fully aware that onshore projects are unattractive, given continued civil strife. The administration is particularly keen to see more deepwater exploration. The 2005 outlook is for a 6% gain.

Other countries. Congo’s drilling will double, with expanded plans onshore and offshore. Seven of 40 wells will be exploratory. Offshore Cote d’Ivoire, six oil producers were drilled. The 2005 plans call for two wildcats and three development wells. Tunisia will see a 31% increase to 17 wells (13 onshore) split evenly between exploration and development. Sudan expects about the same drilling level to 220 wells. And Libya’s drilling will hold steady at the 130-well level.

MIDDLE EAST
Growth is slowing, due to Saudi Arabia having difficulty finding more rigs. However, the kingdom will still post a good increase. Elsewhere, slight gains or losses will be the norm. Regional wells will rise 6.8%.

Saudi Arabia. Ambitious development plans are being implemented by Saudi Aramco. A major question is where the extra rigs are going to come from to drill all the wells. Saudi also has significant gas development plans. Nevertheless, the kingdom has scraped together enough capacity to boost drilling 30%.

Oman. The sultanate again has a high well total at 455 wells, as it tries to shore up oil output. Officials last December extended dominant operator PDO’s Block 6 concession for 40 years. Block 6, PDO’s sole concession, covers central and southern Oman. PDO will boost oil production by further developing Harweel field, adding another 30,000 bopd.

Iran. Drilling last year jumped to 177 wells, reflecting strong development work and increased exploration. State-owned NIOC reported 77 successful oil and gas wells between March and mid-November 2004. OMV struck an oil find in Iran’s western region of Zagros and will drill two appraisals. New development projects should appeal to foreign firms after parliament approved a new foreign investment law.

FAR EAST
China will drill its usual large total, ensuring that the region remains flat with 2004. Exploration is rebounding in India, Malaysia and Thailand, complemented by development work. Offshore wells will be up 14% regionally.

China. The major state firms, CNPC, Sinopec and CNOOC, will combine for another total at 10,000 wells or above. CNPC said it has 580 drilling crews and 620 rigs that can drill 17.5 million m (57.4 million ft) annually, but some rigs and crews are used overseas. Offshore, ConocoPhillips will invest $1.8 billion to develop Phase II of its Bohai Bay oil field.

India. Activity was up 5% last year, but that was merely a warm-up for 2005’s projects. The Directorate General of Hydrocarbons predicts that drilling will jump to 504 wells from 442 during 2004. Offshore work will comprise 44% of the total, and exploration drilling will be up significantly. Exploration wells will total 265, compared to about 200 in 2004. Furthermore, offshore wells will number 224, up 60% from the 140 wells drilled during 2004. Oil completions accounted for 49% of all drilling.

Indonesia. Officials have discussed giving incentives to investors, to stimulate development. In the meantime, wells were up 19% last year. For 2005, the forecast calls for an 11% decline. Offshore activity will remain at about 20% of all drilling.

SOUTH PACIFIC
A small increase is expected after a substantial gain (52%) was tallied last year. Each of the countries experienced growth in wells drilled. This year, a mixed performance is predicted.

Australia. Following last year’s 34% growth, Australia will take a breather and post a modest increase. Offshore work will again comprise nearly 40% of all activity. State performances will be mixed. Queensland’s onshore wells will be down 14%, but this will be offset by a gain onshore South Australia. Three wells were drilled last year offshore Tasmania, as Origin Energy prepared to bring Yolla gas field onstream.

New Zealand. The Crown Minerals Department said that 27 wells were drilled, including seven offshore. Activity will remain strong in 2005 at 22 wells, of which two-thirds will be offshore. Officials have commissioned a 100,000-km seismic survey off the North Island’s east coast. It is part of a $15-million investment fund approved in September to entice urgently needed development of new oil and gas fields.