Westwood’s Drilling & Well Services Spotlight

Each month, Westwood’s onshore team provides a summary outlook for specific service line categories in the wells, services and equipment sector.

Updated – 6th January, 2021

DWS Spotlight Jan 2021
USA: The USA is anticipated to lead global perforation services expenditure over 2021-2025, with spend totalling an estimated $4bn. Perforation spend will be one of the few service lines that are expected to see higher spend in the forecast compared to the hindcast, with spend expected to be 12% higher than the previous five years. This is a result of both the high number of completions expected over the forecast, as well as a significant wellstock requiring workover operations. Demand for perforation services was hit hard in 2020, falling 39% and while minimal growth (<1%) is expected in 2021, spend is expected to recover at a stronger rate beyond that.
China: Accounting for 21% of global forecast perforation spend, China is expected to see strong growth over the forecast. This is due to ambitious production targets to ease the reliance on fuel imports, which are expected to lead to a large increase in drilling and completion activity from both conventional and unconventional developments.
Russia: Russia is still expected to account for 14% of total perforation expenditure 2021-2025. Although OPEC+ agreements will continue to constrain production in the near-term, Russia and Kazakhstan will be permitted to ease their agreed cuts by a combined 150 kbbl/d by March 2021. This, as well as Russia’s large wellstock and need to meet export agreements, are expected to support continued high demand for perforations services.
  • From this edition of the DWS spotlight, the forecast period will cover 2021-2025 rather than 2020-2024.
  • Completion and workover activity drives global onshore perforation spend, which is expected to total $9bn between 2021-2025. Those countries with a significant number of drilled but uncompleted wells (DUCs), as well as countries with a large wellstock, will account for the largest proportion of expenditure. Unlike the majority of other DWS service lines, Westwood anticipates forecast perforation spend increasing on the previous 5-year period, due to the relative resilience of workover operations compared to new drilling activity through a downturn.
  • So far in 2021, there has been a notable increase in oil prices, helped by OPEC’s recent decision to extend and, in some cases, deepen production cuts. While uncertainty remains prevalent, perforation expenditure is expected to see year on year increases from the nadir of 2020, with total spend in 2025 expected to be 56% higher, as completion activity improves in line with an expected improvement in oil price

Jack Baxter
Analyst, Onshore
jbaxter@westwoodenergy.com

Updated – 1st December, 2020

USA: The USA will continue to lead global completion equipment expenditure over 2020-2024, with spend anticipated to total $11bn. Despite this, demand for completion equipment services within the USA over 2020-2024 will be 14% lower than the previous 5-year period, predominantly due to the expectation of continued oil and gas pricing pressure throughout the period.
China: Long-term production targets, aimed at improving China’s energy security are expected to be pursued, with unconventional developments driving gas production growth. The focus on unconventional gas is anticipated to drive demand for completion equipment services, which is forecast to grow year-on-year, reaching $2.1bn in 2024, 29% higher than in 2020.
Russia: Russia’s completion equipment services market has increased in recent years, as operators have increased horizontal drilling activity to improve production at mature fields. Continued horizontal drilling activity is expected to drive demand for completion equipment services over the 2020-2024 period, totalling $5bn.
Argentina: A target to double production by 2023 is unlikely to be achieved as subdued oil prices, infrastructure bottlenecks and a severe recession slowed progress in 2019. This has been exacerbated in 2020 by the price collapse which brought drilling activity to a near standstill in Q2 2020. Improvement is expected over 2021-2024 but activity will remain suppressed unless there is a significant increase in commodity pricing, causing completion equipment to fall by an estimated 30% compared to the previous 5-year period.
  • As of December 2020, Westwood anticipates global onshore completion equipment services will total $30bn over 2020-2024. Expenditure is expected to see year on year increases from the nadir of 2020, with total spend in 2024 expected to be 47% higher, as drilling activity improves in line with an expected improvement in oil price. Crucially, however, expenditure in 2024 is expected to remain 10% below 2019 levels.
  • The completion equipment services market is dominated by the world’s biggest drillers, with the USA, China and Russia accounting for 81% of all spend in this service line over the forecast.

Jack Baxter
Analyst, Onshore
jbaxter@westwoodenergy.com

Updated – 9th November, 2020

Russia: Russia is expected to lead global rig & crew expenditure over 2020-2024, with spend anticipated to total $39bn. Demand for rig & crew services will be driven by Russia’s relatively stable drilling market, longer average footage requirements and comparatively high dayrates compared to other areas.
Colombia: EcoPetrol’s better than expected Q3 2020 results, as well as Nabors Industries’ positive outlook for Latin America, have led to an upward revision to Westwood’s wells drilled forecast in Colombia, driving an increase in rig & crew services spend compared to Westwood’s October expectations.
China: Despite challenged oil prices, long-term production targets aiming to improve China’s energy security are expected to be pursued. As a result, drilling activity in China is forecast to experience strong growth beyond 2021, with demand for rig & crew services totalling $33bn over 2020-2024.
Africa: Key projects in Kenya (Lokichar) and Uganda (Tilenga-Kingfisher) appear to be moving towards sanctioning after many delays, providing a potential boost to Africa’s drilling market and rig & crew services in the later years of the forecast.
  • As of November 2020, Westwood anticipates global onshore rig & crew will total $144bn over 2020-2024. Expenditure is expected to see year on year increases from the nadir of 2020, with total spend in 2024 forecast to be 36% higher, as drilling activity improves in line with an expected improvement in oil price. Forecasted expenditure is expected to peak in 2024, but is still expected to be below 2019 levels, highlighting the continued economic pressure that is expected to weigh on developments.
  • In November 2020, Westwood has revised up drilling expectations to several countries within the wells drilled forecast. Both Colombia and Argentina have seen positive revisions to wells drilled compared to October expectations, due to positive rig data and reports from rig contractors.
  • The rig & crew market is largest for the world’s biggest drillers, with Russia, China and the US accounting for 67% of all spend in this service line over the forecast.

Jack Baxter
Analyst, Onshore
jbaxter@westwoodenergy.com

Updated – 9th October, 2020

USA: Second only to China for total wells drilled over 2020-2024, and with higher drilling fluid services requirements per well, it is the US that is expected to continue to lead spend in this service line. Despite this, the impact of the oil price crash on drilling activity is expected to lead to a major contraction in the drilling fluid services market over the forecast, with expenditure expected to be 48% lower over 2020-2024 than the previous 5-year period.
Oman: Oman is the largest onshore driller in the Middle East and is expected to see a continued high level of spend for drilling fluid services. This is a result of the extensive use of enhanced oil recovery techniques that are used to maintain production at the country’s major producing fields.
Argentina: Despite a significant downward revision to Argentina’s drilling outlook, continued drilling at unconventional plays is expected to support drilling fluid services. As a result, drilling fluid services spend per well is expected to be higher than the global average, leading to an estimated expenditure of $0.4bn, the seventh highest globally.
Middle East: Many of the region’s most productive fields are mature, thus requiring intensive drilling and workover activity maintain production levels. As a result, countries such as Saudi Arabia and Kuwait are expected to see significant spend within the drilling fluid services market segment.
  • As of October 2020, Westwood anticipates that global onshore drilling fluid services will total $26bn over 2020-2024. Expenditure in 2020 was 50% lower than in 2019 and is expected to fall a further 2% in 2021 as continued low oil prices, as well as operator budget cuts, impact drilling activity in key demand countries, especially the USA. However, beyond this point prices are expected to recover, with spend in 2024 expected to be 49% higher than the nadir of 2021.
  • Over 75% of global drilling fluid services expenditure comes from the USA, China and Russia, due to the high number of wells drilled in order to maintain production at their assets.

Jack Baxter
Analyst, Onshore
jbaxter@westwoodenergy.com