At midday Aug. 11 the West Texas Intermediate price jumped $2.06 to $43.77, regaining much of the ground lost over the previous days. The price rollercoaster was in full swing, showing that forecasters still aren’t sure what direction prices are headed. Drilling contractors are hoping the upswing will continue.
Douglas-Westwood sees a silver lining on the storm clouds. In its World Land Drilling Rig Market Report, the company forecasted continued compression of the market in 2016 but market recovery over the following four years.
“The downturn in commodity prices had a significant impact on onshore drilling activity in 2015, with the total number of onshore wells drilled declining by 32% from 90,784 to 61,873 wells. This reduction in drilling activity had a detrimental effect on rig demand, with the global number of operational rigs falling by 25% from 6,334 to 4,746. The number of rigs engaged in drilling activity experienced a similar decline, falling by 24% from 5,427 units to 3,965, with Eastern Europe and the former Soviet Union [FSU] being the only region not to witness a reduction,” said Katy Smith, analyst and report author for Douglas- Westwood.
“Following announcements of further reductions to capital expenditure for 2016, Douglas-Westwood expects an additional decline in onshore drilling activity to result in further compression to the land rig market as operators adjust to working in a sustained low oil price environment. The global number of onshore wells drilled is forecast to decline by a further 21% in 2016, resulting in a 24% reduction in the number of rigs drilling,” she explained.
There is some light at the end of the tunnel. “The global number of onshore wells drilled is expected to increase at a compounded annual growth rate of 9% over the next four years from 49,128 wells in 2016 to 69,407 wells in 2020,” Smith said.
“Subsequently, the global number of rigs drilling is forecast to rise by 38% from 3,414 units in 2016 to 4,703 rigs in 2020. The global capable fleet size is expected to increase by 188 units over the forecast period, reaching 9,255 units by 2020. Eastern Europe and the FSU will account for approximately 49% of the additional units to the fl eet, as increased horizontal drilling activity in Russia results in rising demand for high-HP [horsepower] rigs,” she said.
Some areas could impact the rig count even more. “In Asia-Pacific, the total number of rigs drilling is forecast to increase by 8% over 2016 to 2020 despite a marginal decline in drilling activity. This is due to increased geological complexity as China seeks to develop its unconventional reserves,” Smith said.
It is encouraging to hear some positive forecasting for a change.
Contact the author, Scott Weeden, at slweeden@hartenergy.com.
Recommended Reading
Enbridge Closes First Utility Transaction with Dominion for $6.6B
2024-03-07 - Enbridge’s purchase of The East Ohio Gas Co. from Dominion is part of $14 billion in M&A the companies announced in September.
‘Unexpected’ JV to Move Permian NatGas to Gulf Coast LNG Terminals
2024-03-26 - A trio of midstream companies—Enbridge, Whitewater and MPLX—will work together to build infrastructure to transport Permian Basin natural gas to Gulf Coast LNG terminals.
SCF Acquires Flowchem, Val-Tex and Sealweld
2024-03-04 - Flowchem, Val-Tex and Sealweld were formerly part of Entegris Inc.
Global Partners Buys Four Liquid Energy Terminals from Gulf Oil
2024-04-10 - Global Partners initially set out to buy five terminals from Gulf Oil but the purchase of a terminal in Portland was abandoned after antitrust concerns were raised by the FTC and the Maine attorney general.
Tivoli Midstream Buys Southeast Texas Coast Infrastructure
2024-04-29 - Tivoli Midstream acquired the Chocolate Bayou from Ascend Performance Materials, including storage and land for development.