As the year draws to a close, attention turns to expectations for 2015. December usually sees a variety of eagerly anticipated E&P spend forecasts, however early indications suggest we will have a mixed bag of operators’ increased/decreased spending plans. The drivers for this can be project-specific – biased by exposure to short or long-term projects – and also geographic.
Whilst the spending surveys are a useful guide, what can be learned right now from the drilling and production data? A review of our latest quarterly DW D&P output throws out some interesting geographic trends and here we pick two to illustrate the point:
The USA, the world’s largest drilling and OFS market seems to have enjoyed a bumper year-to-date. Our expectations for land drilling in 2014 are just over 40,000 wells, versus 37,677 in 2013. The market has been buoyed by an upturn in activity in Texas shale formations, with the Texas Railroad Commission reporting completions increased by 21% for the first three quarters, with 23,149 over the year.
In contrast Russia, another major OFS market, appears to be suffering. Drilling is conducted by both independent contractors and directly by some E&P companies. Despite the long-term positive underlying drivers, the impact of both geopolitical turmoil and weak oil prices is becoming evident. The largest drilling contractor, EDC has reported drilling volumes down 7% for the first three quarters. Surgutneftegas a 17% drop, whilst for the first half of 2014 Rosneft was down 1.6% and Gazprom reports a slight upturn. Furthermore, international oil companies such as ExxonMobil and Shell have had to suspend activities in Russia as a result of sanctions imposed on the country. Overall, our expectation is that Russian drilling will be down some 10% in 2014, at 6,700 wells, and will remain so or slightly lower in 2015 before recovering over the period to 2020.
Instances of double-digit movements in drilling from one year to the next are comparatively unusual, particularly so for large, established markets. But as the above illustrates, attempts to generalise the outlook for the whole E&P sector are difficult, and the “devil is always in the detail.”
Steve Robertson, Douglas-Westwood London
+44 203 4799 505 or Steve.Robertson@douglaswestwood.com