Global production of oil and condensates increased 1.6% from 2009 to nearly 73.6 million bpd last year, a sign of the easing of the global economic crisis and a response to the rise in oil prices. Within the OPEC-member Middle Eastern countries, crude production registered a slight increase, with Saudi Arabia at 8.2 million bpd (0.7% up), Iran at 4.0 million bpd (0.4% up) and Iraq at 2.4 million bpd (0.8% up). As expected, production from Venezuela declined to 2.3 million bpd (2% down), but Nigeria raised its output to 2.4 million bpd (9.2% up). In the non-OPEC countries, production in Western Europe declined to 3.6 million bpd (7.5% down), but increases were recorded by Canada at 2.7 million bpd (4.9% up), Brazil at 2.1 million bpd (6.8% up) and Russia at 9.8 million bpd (3.2% up). The United States increased its production 2.2% to 5.5 million bpd due to rising production from the Permian Basin and the Bakken Shale oil play.
Easing economic conditions were also reflected in a large drilling increase outside the US last year to 51,523 wells, 10.1% up from 2009 levels. World Oil forecasts that number to increase by 1.9% this year to 52,478 wells, with the greatest percentage gains in the Middle East, followed by the South Pacific and Western Europe. For a welcome change, Barclays Capital forecasts that this activity increase will be largely driven by supermajors, rather than by the national oil companies as in recent years. Offshore, including the US Gulf of Mexico, we predict a 4.2% increase in the number of wells drilled, from 2,738 to 2,853 wells, with the biggest percentage increases in the Middle East and the North Sea.
| Forecast of 2011 drilling outside the US |
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| World crude plus condensate production by countries |
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North America. With its first drilling increase in four years, Canada saw its drilling activity rise 21% last year from 2009 levels, and another 2.3% gain is expected to occur this year for a total of 11,163 new wells. While the Canadian drilling recovery is impressive, this forecast is still far below the nearly 25,000 wells drilled in 2006.
Reversing production decline rates will be a major goal for Mexico, where Pemex is expected to finally introduce its long-awaited first round of incentive-based contracts, with the first being in Tabasco state. The oil and gas industry will also be looking to see if Mexico’s government can establish order in its northern regions, where the recent upsurge in drug cartel-initiated violence has severely complicated local gas-producing operations. Nevertheless, Pemex is showing confidence, with about 5% of its 2011 drilling planned for exploration. Offshore, the company plans to roughly double its drilling from 35 wells last year to 69 in 2011. However, overall drilling in the country is forecast to decrease 7.8% to 1,070 wells.
Drilling activity was on the rise in Cuba throughout 2010, with Russia’s Gazprom and Chinese oil company Sinopec having started exploratory drilling offshore the Caribbean nation. All drilling was onshore last year, totaling 25 wells. Another 28 wells are slated for this year. Nine wells will be exploratory, including three offshore. Repsol has contracted with Saipem for the construction of a new drilling rig in China to drill as many as three exploration wells offshore Cuba in 2011. Russian state oil company Zarubezhneft recently announced plans to drill an offshore well on the Cuban shelf in 2011.
South America. Having drilled 1,457 wells last year, Argentina is by far the largest driller on the continent. Repsol-YPF is the dominant operator, accounting for 60% or more of the wells drilled. That number will stay relatively flat this year at 1,435 wells. Some of the new drilling will be for shale exploration, led by ExxonMobil and France’s Total, which have both recently announced partnerships with local oil firms.
Venezuela increased cooperation with international oil majors such as China’s CNPC and Italy’s Eni, who both formed Orinoco belt-focused joint ventures with PDVSA. Drilling is expected to partially recover this year, gaining about 11% for a total of 980 wells. However, the lack of legal and financial security, and especially the threat of asset seizures, will keep private investors cautious.
Petrobras recently announced that it will spend $224 billion over the next five years in Brazil to reach a target production of 5.4 million boepd. Reaching that goal may take up to a decade. However, in the process, the company could very well become the largest publicly traded oil producer in the world. Several large investments in developing Brazil’s offshore resources were announced in January, including BG Group’s investment of $10 billion over the next 10 years. Both Petrobras and OGX, along with partners such as Maersk, have made a series of discoveries offshore Brazil in the Campos and Santos Basins. Additionally, Brazil will hold its first pre-salt oil block auction in February 2011.
While exploration and drilling operations continue to bustle offshore Brazil, we forecast a 5.7% decrease in wells for 2011, to 181 from 192 last year. This is probably due to the fact that the average well depth is increasing, and it will take longer, on average, to drill each well. Overall, Brazil will see a 10.2% increase in drilling, to 770 wells.
Europe. As a result of 39 blocks offered up in the 2010 lease sale in Norway and a predicted doubling in upstream investments in the UK in 2011, the North Sea will see activity increase this year, with both of those countries adding more than 6% to their 2010 drilling totals. In particular, UK activity will be boosted by Total’s decision to proceed with development of the Laggan and Tormore gas fields in the West of Shetlands region. Statoil has recently announced plans to expand its presence in the Norwegian Continental Shelf, and the Norwegian Petroleum Directorate reported recently that 39 companies have received offers for 50 new production licenses in the area.
Onshore, shale exploration has gained momentum over the last 18 months, with ongoing shale and conventional oil drilling underway in the Paris Basin of France. ExxonMobil also recently announced that it plans to invest several million in Germany for gas exploration. In Poland, NOCs, supermajors and independents have been partnering for shale exploration operations. Because of the promising well test results and large contracts announced in that country, we predict the number of wells to increase to 35 in 2011, from 31 last year.
Plans are also currently underway to develop the giant Delvina gas field in Albania, while Petrom and Hunt Oil invested $25 million for exploration activities in eastern Romania last year, which will support a slight uptick in drilling this year.
Former Soviet Union. In 2011, drilling in the FSU is expected to see a slight uptick due to flat brownfield output combined with improving greenfield production in Russia from the Eastern Siberian fields and the Caspian shelf. Once again, Russia is seeking Western technology to develop its oil and gas resources, as most recently demonstrated by the recent agreement between Rosneft and BP to develop fields in the Arctic Kara Sea. Prime Minister Vladimir Putin recently urged Russian enterprises to seek similar joint venture opportunities to develop the vast Yamal Field. Offshore discoveries in the Caspian Sea by Azerbaijan, Kazakhstan and Turkmenistan will spur further exploratory and appraisal drilling in 2011.
Africa. Offshore West Africa was a focus for deepwater drilling last year, with several joint ventures launching exploratory drilling programs off the coasts of Guinea, Ghana and Angola, and more investment capital will be brought to the region for exploration in 2011. However, political uncertainty may hinder the region’s ability to tap into its offshore resources. As old projects, such as Girassol and Jasmin, enter the EOR stage, several mega-projects, such as Agami, are producing at high capacity. Construction is underway for newly discovered fields, such as CLOV, Usan and Pazflor. New discoveries, such as Jubilee Field in Ghana, are setting the stage for the next decade of deepwater development.
Sudan has been one of the biggest beneficiaries of recent E&P investment by East Asian NOCs: CNPC and Malaysia’s Petronas reportedly own 70% of the country’s producing blocks between them. Even with the difficulties expected to accompany the secession of the nation’s south, the country will increase its drilling 11.1% this year to 150 wells, making it the brightest spot in this year’s forecast for the continent. Libya will also see a small but significant increase this year, to 204 wells. In December, BP began drilling offshore that country and in its onshore Ghadames Basin. The company has announced plans to invest roughly $1 billion during the next seven years to develop Libyan oil reserves, including offshore developments.
Middle East. The biggest regional increase in 2011—both in absolute terms and as a percentage of 2010 activity—is forecast for the Middle East, with a 374-well (17.2%) increase to 2,545 wells. Oman overtook Saudi Arabia last year as the region’s biggest driller, with 590 new wells, but only a slight increase is expected this year, to bring the two countries to parity at 600 wells. For Saudi Arabia, those 600 will be 23.7% more than the 485 drilled there in 2010. The kingdom has been aggressively pursuing multilateral drilling projects throughout its assets, in part to keep up with rapidly growing domestic energy demand. Abu Dhabi currently holds 95% of the UAE’s oil reserves and recently announced plans to extend several Japanese firms’ oil rights for 30 years.
In 2010, Iran assumed the OPEC presidency for the first time in 36 years and shortly afterwards announced plans to begin developing the giant $50 billion Khayyamhas Field. Drilling in the country is forecast to stay relatively flat at 110 wells. Qatar became the world’s leading LNG exporter last year, and Qatar Petroleum recently signed a joint venture with Exxon to develop the $8.6 billion Barzan gas project. It will maintain a steady rate of drilling in 2011, with 85 new wells. After recently bidding oil licenses to 45 companies, Iraq is expected to increase its drilling activity by over a third this year, to 76 wells.
One of the most exciting developments in the Middle East is Noble Energy’s discoveries offshore Israel. The Tamar and Leviathan projects are estimated to be worth over $5 billion per year to Israel, though drilling may be dampened by a proposal to increase the state’s share of profits to 62%.
Far East. With a series of new discoveries offshore India and shale exploration onshore, World Oil predicts a slight increase in drilling for that country, to 440 wells. During 2010, state-owned ONGC made 21 discoveries, including two off India’s west coast and one off the east coast. The company has also begun shale gas exploration, drilling the first shale well in eastern India. Reliance Industries, the leading private operator, achieved four discoveries in 2010 and drilled four appraisal wells in the KG Basin.
While China has directed its national oil companies to develop reserves outside its borders in the last few year, it has also kept up domestic E&P activity, with about 21,000 wells drilled each in 2009 and 2010, a rate we forecast to continue this year. Offshore drilling was particularly robust last year, jumping over 75%, to 343 wells. It is our belief that China’s offshore efforts are very close to capacity, so the offshore outlook for 2011 is a more measured 8% gain to 370 wells.
Several recent announcements of investment plans and government exploration incentives have begun to stir optimism in the growth of E&P activity in Southeast Asia. Pertamina recently announced that it has earmarked $1 billion for investment in Indonesia in 2011, and plans to drill 15 exploration wells offshore that country. The company signed an agreement in December with ExxonMobil, Total and Petronas for the joint development of the deepwater Natuna Sea Alpha D block, which has potential reserves of 46 Tcf. Also, Chevron will soon begin developing a giant onshore gas project in the southern region of the country. We expect Indonesia to maintain its drilling rate, with 1,245 new wells.
In Malaysia, five new incentives were proposed to promote the development of new oil resources, facilitate the exploitation of harder-to-reach oil fields and stimulate domestic exploration. In January, Exxon and Shell announced plans to invest $5 billion in Malaysian E&P activities. That country will see steady activity, with 129 new wells.
South Pacific. While its gas reserves rank only 14th in the world, experts believe Australia is poised to become the next LNG powerhouse. Australian LNG has already garnered serious interest from China, which aims to have gas account for at least 10% of its energy mix by 2020. Last August, PetroChina agreed to buy $41 billion worth of LNG from the Chevron-operated Gorgon project off Western Australia—the biggest Aussie trade deal to date. Also in the fall of 2010, BG Group announced that it will invest $15 billion in the Curtis LNG project. Australian drilling is forecast to increase 8% this year, to 190 wells.
Drilling in New Zealand increased substantially last year, to 41 wells, and this year 54 wells are anticipated, including 13 offshore. A high ratio of exploratory wells will be maintained, with 46 of the wells falling into that category, of which 10 will be offshore.
The Arctic. Arctic drilling is slowly starting to gain momentum. Cairn has begun drilling offshore Greenland, and BP and Rosneft recently agreed to explore three license blocks on Russia’s Arctic shelf. While the Arctic is the industry’s next frontier, the area as very slow to develop with its limited weather window, lack of infrastructure and border issues. 
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