World Drilling & Production – Drilling Decline Inevitable as Oil Price Remains Low

The release of the Q1 2015 edition of Douglas-Westwood’s (DW) World Drilling & Production Market Forecast (DWD&P) marks a year since the report came to fruition. Initially covering 51 of the key oil and gas producers worldwide, this unique product stood out from existing drilling and production forecasts by taking into account a large number of data and information sources. In addition, the publication is driven by DW’s in-house Offshore Database – updated daily – which catalogues every visible offshore oil and gas project in the world. Via these drivers, a proprietary method is utilised to derive historical and forecasted daily production and number of wells drilled annually. This data is broken down into a high level of detail: oil and gas for onshore, four water depth categories for offshore.

The forecast changes for Q4 2014 and Q1 2015 editions had an overriding theme – oil price. The ~50% drop in oil price from June/July 2014 to the time of writing has led to significant alterations, particularly in key onshore drilling sectors. Revisions were made for both quarterly updates to the US and Canada drilling forecasts as operators reduced 2015 capex – leading to rig releases and job cuts. DW predict the total number of onshore development wells drilled in North America for 2015 will be 30% lower than the 2014 total – this compares to growth of 8% predicted prior to the oil price crash.

DW’s Russian drilling and production forecast has also been significantly adjusted over Q4 2014 and Q1 2015 updates. The sanctions imposed by the EU and USA following Russia’s annexation of Ukraine’s Crimean Peninsula have hurt the country’s upstream sector considerably. Restricted access to drilling technology and a ban on Western oil companies signing joint ventures with their Russian counterparts (compounded by the drop in oil price) means that DW now predict the annual number of wells drilled will fall 11% from 2014-2015. This is in addition to the decline in drilling over 2013-14.

With the latest update to DWD&P, DW are forecasting global onshore drilling will decline 20% - resulting in the smallest annual production growth for six years at just 1% (versus an average of 3% over 2010-14). Offshore, drilling will continue growth at 3% per year until 2018, when a lag in sanctioned projects will cause a slowdown in activity. This will translate into a slowing of offshore production growth from 2019 onwards.

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