Offshore drilling has declined but the gloom should be short-lived
Global spending on offshore drilling is forecast to rise 32% over the period 2009-2013 compared with 2004-2008, despite reduced spending in 2009 and 2010. According to the latest edition of the ‘World Offshore Drilling Spend Forecast 2009-2013’ published today by Douglas-Westwood and Energyfiles, $278bn was spent between 2004 and 2008 on offshore drilling. The report forecasts lower spends in 2009 and 2010 followed by a return to previous levels of growth, to total $367bn over the five year period. By 2013 the global drilling market will be worth an estimated $89 billion, more than doubling since 2004.
The data, derived from the ‘Energyfiles Global Database’, predict total global wells to rise 7% over the period 2009-2013, despite a sharp decline in 2009. “Approximately 18,310 offshore wells were drilled over the last five years. The forecast is of a decline in 2009, followed by consistently rising numbers including a sharp jump in 2011, to total 19,570 by 2013. Asia is still seeing the highest activity, followed by North America and then Western Europe,” said report author Dr Michael R. Smith of Energyfiles.
“Due to a lack of opportunity shallow water exploratory drilling has been on a declining trend albeit with a modest price-led resurgence in 2006 and 2007. Shallow water exploratory drilling levels are not expected to ever return to their most recent 2007 peak but growth in deepwater drilling has supported exploratory drilling over the last five years – to reach 40% of all exploratory wells by 2013. The steady growth is a result of new ultra deepwater targets becoming increasingly viable, as the capability of deepwater production systems is improved, giving additional encouragement to explorers to take these expensive risks.
“With surging oil prices shallow water development drilling grew rapidly up to 2006, before flattening off. A decline is now forecast followed by returning growth as many of the delayed projects of 2009 are restarted. Growth would be even more marked if not for better, more productive, well bores allowing fewer wells per field. And total development drilling levels will be supported by continued rapid growth in deepwater drilling from 2010.”
Steve Robertson, of Douglas-Westwood, commented, “The impact of the recent downturn is clearly more marked within the shallow water segment which in turn has impacted on jackup utilisation and dayrates. However, high-spec floating rigs capable of working in deepwater and harsh environments continue to be in demand and utilization and dayrates are holding up well.”
Dr Smith also points out that engineering makes up the biggest cost sector in offshore drilling followed by rigs. “In 2006 and 2007 there was a disproportionately large surge in rig costs as the higher specification, high dayrate rigs most required were in short supply. But relative spends for engineering and rigs are expected to remain fairly constant through to 2013 with a wave of new rigs entering the market. Modest declines in rig utilisation are expected over the next two or three years.
“From 2010 a return to increases in spending are forecast, especially directed at deepwater development projects. The big expansion in the number of rigs available for these projects will just about meet market demand. Even though total well drilling numbers are forecast to flatten off after 2012 this will not prevent overall spends continuing to rise as wells become ever more costly and oil prices surge again.”
The global recession has had its effect. As economic growth began to slow there was an inevitable knock-on effect into energy demand. Global oil demand, standing at around 85,000 barrels per day in 2007, declined in 2008 and will decline even further in 2009 – the first time this has happened for two years running since 1983. In early 2008 high oil prices and a global shortage of drilling opportunities ensured that even the most expensive offshore drilling projects went ahead. Now in 2009 we have across-the-board deflation in prices and delays in both shallow and deepwater projects.
“Although global economic recessions have always led to declining energy demand, the resultant lower prices soon engineer a recovery in demand and then prices, especially as OPEC acts to rein in output. Thus in early 2009 the supply/demand balance for oil had already stabilised, despite the worsening recession. The numbers in this report point to a return to stability in 2010 and, by 2011, a strong growth in the offshore drilling industry is forecast, especially in high technology areas,” says Dr Smith.
