Vital drilling and production data show solid growth in global E&P market

KURT S. ABRAHAM, Texas Alliance of Energy Producers; and WORLD OIL STAFF

While not spectacular, the global upstream market is posting a substantive recovery from the downturn that hit during late 2008 and persisted through 2009. Last year, despite weak US and European economies, drilling and production activity registered solid gains. That trend continues, as operators take advantage of increased cash flows generated by relatively high oil prices.

Drilling trends/outlook. According to World Oil’s midyear forecast update, based on proprietary surveys and other data, worldwide drilling will be up 10.4% this year, at more than 104,000 wells. This follows a 7.2% gain last year, when the global well total finished above 94,500.

Whereas the rest of the world was up nearly 11% last year compared with 2009, US drilling improved just 2.6%. But this year, the pattern is reversed: It is the US that expects to rebound by 21.2%. The rest of the world will be up only 2.4%. The US recovery is spurred by big increases in Texas, North Dakota, New Mexico, Colorado, California and Kansas. A large portion of these gains will be from rigs targeting oil and liquids-rich gas.

In Canada, drilling jumped 23.5% in 2010, much of that traceable to oil activity. Gas drilling remains depressed, a victim of low prices. This split existence will continue through 2011, restricting any further growth.

Mexican drilling improved last year, but some of those gains may be lost in 2011, owing to budgetary considerations at state-run Pemex. Although a drilling decline of up to 8% is on tap for Mexico, Pemex is looking toward the future by increasing spending for exploration.

With a few exceptions, 2011 should be a fine year for South America. In response to its regulatory reforms, Colombia is enjoying a multi-year increase in drilling. Venezuela has also boosted activity, in an effort to restore productive capacity. Brazil has started production from Lula, its first presalt field, and has issued contracts for deepwater rigs to undertake sustained exploratory and development drilling in the presalt basins.

Western Europe’s drilling outlook is a mixed bag. Declines are forecast for the UK, Austria and the Netherlands, but nice gains are seen for Germany, Italy and Denmark. Overall, wells will be up less than 2%.

Unless capital spending takes another leap, it appears that drilling in the FSU and Eastern Europe has hit a comfortable plateau. Operators are focused on repairing wells and restoring output in existing fields rather than new developments.

African operators continue to put new offshore fields (many of them deepwater installations) onstream in almost assembly-line fashion, particularly offshore Angola and Nigeria. However, in the wake of civil unrest and the toppling of regimes in Egypt, Libya and Tunisia, there is great concern about how officials in these countries will treat the E&P industry.

In the Middle East, national oil companies reign supreme, and drilling seems immune to problems in other regions. Last year, development work in Kuwait, Saudi Arabia and Oman boosted regional drilling nearly 12%. An even better gain is set for 2011.

It is business as usual in the Far East, where China dominates drilling. In a concerted effort to find more domestic oil and gas, Chinese companies set a record for wells drilled last year, and that mark may be broken this year. However, with the exception of India and Myanmar, most countries will see flat or somewhat lower activity.

In the South Pacific, Australian activity remains weighted toward development work, with exploration for oil remaining at historically low levels. The current drilling activity is associated with large LNG projects, coal seam gas and preliminary shale exploration in the Cooper basin. Wildcat and appraisal drilling is thriving in neighboring New Zealand, with several new finds identified.

Oil production trends. Having fallen nearly 2% in 2009 to 72.43 million bpd, global production of crude and condensate recovered nicely last year, rising 1.2% to 73.30 million bpd.

After many years of declines, US output achieved a second consecutive increase, gaining 2.4%. Canadian and Mexican production were also up after sustaining losses in 2009.

Oil output was disappointing for Western Europe. Every major country posted a loss, save for Italy. A similar fate could have befallen Eastern Europe, but the region eked out an increase, thanks to greater output in Russia and other FSU countries.

Africa registered an increase, thanks to new deepwater fields going onstream offshore Nigeria. However, there were disappointments elsewhere on the continent. In the neighboring Middle East, new development efforts pushed output higher, and the gains could have been greater, were it not for OPEC quota restraints.

China continues to surprise analysts with its ability to maintain output at aging fields. A moderate increase there, along with Thailand’s hefty gain, was enough to offset losses in several other Far Eastern countries.

Despite declines in three of the four producing countries, South Pacific oil output actually rose last year. That’s because East Timor’s production nearly tripled due to new condensate output.  

The World Oil Upstream International Forecast is available for purchase at GulfPub.com/InternationalUpstreamForecast. Included are up-to-date production statistics by country for 2009 and 2010, drilling data by country for 2010 and 2011, oil and gas reserves and producing wells for select countries, and discussion of E&P activity by country.