Although drilling and production are down, it’s possible, even likely, that with a little luck both things will be reversed this year. Absent Canada, drilling should be up.
Outside the US, we forecast a decrease of 5% in drilling this year, to just under 53,000 wells. The drop is entirely due to the continued fall in Canadian drilling. If the dramatic Canadian falloff is excluded, then drilling outside the US should go up 5.6%, led by Russia, the Asia-Pacific and Middle East regions.
World crude and condensate production will be off by at least a half percent, with the US holding flat. This situation could easily get worse; it will be a proverbial race between decline and new production, as always. Everyone has known for a few years that Mexico and the North Sea-both 3 million-bopd regions-would begin to decline. But now the optimism is waning that such decline will be gentle, with the data increasingly pointing to “steep” in both regions. Africa, offshore Brazil, Russia and the Middle East are the only places that have a chance of compensating for the deepening decline.
However, there are just enough new projects coming onstream this year and next that, with a little luck, things could balance, especially if high prices dampen demand.
Drilling activity offshore should nudge up 4% this year, to just over 3,300 wells. The increase will be led regionally by offshore West Africa, which will have about 40 more wells. Most of these will be offshore Angola and Nigeria.
In the Far East, China, India, Thailand and Indonesia will each increase their offshore program by at least 10 percent. We also forecast some modest expansion in the Gulf of Mexico and offshore Brazil, but many of the wells in those regions will be deep and lie in ultra-deep water.
|World crude/condensate production by countries, 2007 and 2006*
The country has plans to increase production, but we think that lagging government investment, combined with the continued distraction with the Kab-121 well blowout-which still has not been brought under control-will keep Mexico’s drilling suppressed; we forecast it will be off about 4%. This is despite a desperate need to stem the rapid falloff in production.
Mexico is one of two areas that have the world’s attention. Together with the North Sea, peak production has occurred and observers are keen to see just how steep production declines, and whether the rest of the world can make up for it without a time lag and the resultant soaring oil prices. Production decline could easily get to double digits if the bad luck (i.e., blowout) and relatively low investment continue.
To combat the decline, Mexico has 15 fixed platforms to install in the Bay of Campache and six in the Tabasco shore area, plus a replacement for the Kab blowout. Ku-Maloop-Zaap and the Canterell complex will get nine of these platforms to be installed this year and in 2009, according to ODS Petrodata.
Canada reached a high of more than 26,000 wells in 2006. But a steep downturn of about 6,000 wells occurred in 2006-’07, and an additional 4,000-well drop is forecast in 2007-’08. This means that the nation will be lucky to drill 16,000 wells-still a good number by historic standards, but 38% off the highs. Drilling and service associations have predicted even lower numbers. The provinces are the most optimistic, saying that 2007 had 20,431 wells drilled, while 2008 should see 19,829 wells. On the pessimistic side are the drilling contractors, who say that 19,144 wells were drilled in 2007, and only 13,735 will get drilled this year (see Canada article on page 85).
Because there were enough rigs to get the job done back in 2006, the quick fall means that rig utilization has plummeted by 40% and could mean relatively low dayrates, even to the point of being unprofitable for drilling contractors. The culprits are weak North American gas demand and soft gas prices, made worse by a new, increased tax scheme for Canadian producers, as well as the rapid fall in the US dollar relative to the Canadian dollar, which lowers the return on exports to the US.
On the production side, although gas seems to be on a long, slow downward trend, oil is doing better, led by the oil sands projects. We think that the country should be able to add another 100,000 bopd next year as well.
|Forecast of 2008 drilling outside the US*
Drilling grew 3%, to 1,900 wells, in 2007, and we expect it to grow another 6.8% percent in 2008. Production was all over the place during 2007. The UAE did not help the matter with a 400,000-bopd shutdown for maintenance that lasted through most of November before resuming operations, coincident with OPEC’s announcement that it would add 500,000 bopd (which didn’t seem to happen).
Saudi Arabia. The Kingdom leads the drilling surge, and has been steadily adding rigs over the last three years-now more than 60% above its rig levels in 2005.
Surprisingly, the only outward sign of all of this activity is an increase in reported spare production capacity, which is odd given that actual production is off by over a million barrels a day since then. It is very expensive to drill and complete new wells at this rate, only to ostensibly shut them in as spare capacity.
Some of the drilling activity in the Kingdom went to the Khursaniyah project, which should begin production early this year, and ramp up to 500,000 bopd, as well as 300,000 bpd of NGLs, according to the IEA. The agency says, “Under fairly conservative buildup and decline rate assumptions, our assumed Saudi crude capacity level reaches 11.3 million bpd by year-end 2008, from 10.8 million bpd currently.”
How much of this capacity expansion actually gets produced is anybody’s guess.
Iraq is finally showing signs of life. Production there is just over 2 million bpd on average, the highest since the war began.
The region will be up over 5.8% in 2008, to 330 wells. Modest gains will be spread among all the countries.
The Former Soviet Union’s strong drilling effort has resulted in that region surpassing Saudi Arabia as the world’s top oil producer at just shy of 10 million barrels a day-at least for now. Russian production should peak at around 10.6 million bpd within two years, with a commensurate drilling forecast to rise by 6% or so this year.
Kazakhstan and the Caspian area are also bright spots for further development and exploration drilling. Production has been increasing throughout the region, and Kazakhstan and Eni have settled their differences over Kashagan field.
The continent will be led by Argentina, in terms of volume of drilling, as is usually the case. But Venezuela will pull the region down. Many operators and service firms are skittish about working for state firm PDVSA. Energy Minister Rafael Ramirez said the country’s rig count was off as much as 40% last year, although the rig counting services did not see that big a drop. The new requirement that contractors donate 10% of the total value of their contracts to social development projects does not help to lower already high prices for oilfield goods and services.
Although oil production is planned for an increase to 5.8 million bpd by 2012, the opposite seems to be happening. President Chavez seems content to let attrition take its slow toll, which makes sense, since he says he is not in favor of raising OPEC production to lower oil prices. We expect a slow decline in drilling and production.
Brazil continues to be a bastion of success and optimism. The country is steadily adding rigs for increases in both exploration and development. Several new discoveries with the potential to add tens of billion of barrels of reserves have recently been discovered (see page 23), while production from new projects continues to increase.
The region should show a modest gain this year, a little over 2%. China is relentless across a broad range to secure fossil fuels for future growth. A further 6% or so rise in drilling-helped by a surge in coalbed methane drilling and an aggressive 12% boost in offshore drilling-will allow continued production growth, which increased about 1% last year and should increase another 1% this year.
Indonesia is struggling to stay in the league of exporters, as its production threatens to fall below domestic consumption needs. It has hopes and plans, and with a little luck and 3% more drilling, it might be able to keep the oil-import wolf from the door. If not, this would make the country the first oil-importing OPEC member. Indonesia has 49 platform projects scheduled for installation over the next three years.
Thailand has ramped up its drilling efforts on land and especially offshore, where strong development drilling has enabled the nation to increase its oil production last year, and it should also increase in 2008. The country is planning 45 platform projects. The four-platform Arthit Field should see production early this year, while production from Great Bongkot North Field should begin next year.
Australia and New Zealand are having good years, spurred by increases in production. For the first time in decades, production is increasing substantially. This is because a new field in New Zealand’s offshore Tui Area, off the Taranaki Coast, is ramping up production in a dramatic way, with 50,000 barrels a day added so far.
Meanwhile, Australia is hoping for a “double peak,” meaning to regain its former peak production, which was achieved in 2000. This will require continued robust drilling as development drilling allows new projects to come onstream. Both countries should see drilling increases above 10% this year.
The continent should see an 8.7% gain in well drilling, led by Egypt. That country is winning the battle against depletion and might see a modest gain this year in oil production, a result of continued year-to-year increases in this prolific area. The country should drill an additional 70 wells over last year-a 16% increase.
Nigeria, despite its unending domestic political troubles, seems determined to increase production, and has added several rigs to the area in late 2007. This year and next should see production increases there with the startup of the offshore Agbami and Akpo projects, at some 450,000 bpd of liquids.
Angola should see continued development and exploration drilling, with several projects slated to come onstream this year and in 2009. Kizomba C’s Mondo Field should soon be adding 100,000 bpd, and that will be followed by another 100,000 bpd from combined output from Saxi and Batuque Fields at Kizomba C later in 2008.
Elsewhere. Libya should see good development drilling on recent discoveries, as foreign contracts bring the country into the mainstream of oilfield technology and allow production to increase. In nearby Tunisia, steady increases in rigs should add another 18 wells to the region’s total. Recent and very promising oil discoveries in Uganda, Madagascar, Ghana and elsewhere suggest that Africa is vastly under-explored, and may hold significant untapped reserves.
The UK has finally decided that, contrary to what was hoped, oil production will not be flat to slightly down over the next few years. Rather, production is now expected to fall off more markedly, and more typically of a mature area. If the last half of 2007 is any indication, it will probably be somewhere in the 3-6% range, but no one really knows. Operators show no signs of ramping up drilling, although the government has a new tax-cut incentive: Previously decommissioned fields that are redeveloped will be exempt from the Petroleum Revenue Tax.
Realistically, it would take a massive effort, on the order of the Apollo program (man on the moon), to reverse the trend, and that is not happening. Also, operators still have options to move elsewhere in the world, such as Africa. We expect things to stay flat in drilling activity in the UK, while production declines accelerate.
Norway will see only a few more wells drilled over 2007, as it continues to focus on increasing production via improved recovery. While there have been some offshore rig constraints, some newbuilds will become available this year and allow some expansion. The country will also continue to lose the production decline battle, as it tries to keep the percentage falloff in single digits.
Other European. In 2008, Switzerland will drill two exploratory wells, Sweden will drill two (one offshore), Portugal will drill four onshore, while Greece will try two offshore. Even Malta plans to spud an offshore well this year. Meanwhile, Poland drilled 27 wells last year and looks to spud a little more than that this year, all for gas.