Looking toward the bright side

Tuesday, September 27, 2016

Quest Offshore, recently acquired by Wood Mackenzie in August, outlines the highlights of the global deepwater drilling market, region by region. Melissa Sustaita sets out the details.

Top: Deepwater well forecast 2016-2020. Bottom: Deepwater well forecast 2011-2015. Source - Quest Offshore. 

Every cloud has a silver lining, according to Leslie Cook, senior research manager, Wood Mackenzie. Although deepwater drilling has experienced a 50% decline since its peak, there is hope in regional activity as new play openings emerge, and frontier potential is realized, she says.

Cook, speaking at an event this summer, says global deepwater well demand is down 50% since 2014, and contracted floating rig supply is down nearly 40%. She adds that deepwater exploration drilling has taken the hardest hit with year-over-year declines at 35% in 2015, and another 40% this year.

Declining demand coupled with an over-supply in floating assets has resulted in aggressive attrition in the floating rig market. More rigs are being stacked, bringing supply closer in balance with demand but at a significant price for drilling contractors in the form of eroding day rates, she says. Leading edge rates on sixth- and seventh-generation rigs have plummeted from mid-US$500,000 to low $200,000 in just a matter of 18 months.

As of September 2016, Quest shows 130 rigs are actively operating. Just over 50% are drilling development wells, while only 25% are allocated to exploration and appraisal wells, with the remainder working on non-drilling activities such as plugging and abandonment, workovers, and/or completions.

“If you look at two years ago in 2014, there were 250 floating rigs working in the month of September,” Cook says. “At that time, nearly 40% of the floating fleet was allocated to exploration activities. If we go back another two years to 2012 exploration drilling was at its peak with nearly 60% of the fleet drilling exploration or appraisal wells worldwide.”

The decline in exploration drilling began in 2013, Cook points out, predominately in Brazil, when Petrobras shifted from heavy exploration and appraisal drilling to more delineation and development drilling, pre-salt as well as its mature basins. This was followed by the impact of the oil prices coming down in 2015, which put high cost drilling programs in jeopardy of delay and cancellation.

“In high-price markets, like Africa, we started to see some declines in exploration,” Cook says. “However, this year, we’ve seen more declines, and in more regions.”

But, she adds: “We’ve also seen a global average of about 50% success rate so far this year, compared to 43% in 2015.”

Quest attributes the small success rate hike to the shift in drilling lower risk prospects.

Quest currently forecasts 664 exploration and appraisal wells to be drilled by floating rigs over the next five years.

“Our quarterly forecast for exploration well demand has consistently decreased over the past two years as commodity prices remain below thresholds to justify nominal gains in global counts,” Cook says. “But if we look at the market through a regional lens there are positive signs of momentum in some areas.”

With respect to total well counts, even if development and exploration wells are combined, Quest’s forecast sees no near-term return to the peak levels of deepwater drilling that took place from 2010-2014.

“We do think, obviously, from a total well demand standpoint, activity could be down certainly beyond 2020,” Cook says. “The drilling contractors have been hit pretty quickly and quite dramatically, especially with the oversupply in the rig market.

Digging deeper into its analytics, there have been some wins of late. Cook calls it the silver lining.

“Africa is the sleeping giant,” Cook says. “The growth potential is exponential there, at the right commodity price.”

Quest is currently forecasting 430 new wells to be drilled in the next five years through 2020 for the Africa and Mediterranean sector, which includes the Black Sea. This comprises an additional 115 exploration or appraisal wells.

“In the near-term we are estimating about 70-75 total wells drilled per year, with rig supply and demand balancing at just under 30 units. There are currently 29 floating rigs contracted in Africa-Med,” Cook says. “Africa has so much attrition that rigs have just gone away, but it is pretty balanced now.”

In the past 18 months, there have been 28 new discoveries in the African and Mediterranean regions, despite the downturn. New play openings in the region include Senegal, Mauritania, Ivory Coast, and the Black Sea. Quest has also noted active development programs in Ghana, Angola, Egypt, and Israel.

According to Cook, the African and Mediterranean region has the most diverse mix of operators of any region, with all the supermajors active.


Asia Pacific

Quest forecasts about 220 new wells to be drilled by 2020, including 100 exploration and appraisal wells, in the Asia Pacific region. In the near term, the company is estimating about 35-40 total wells drilled per year, with rig supply and demand balancing at around 20 units. There are currently 24 floating rigs contracted in Asia-Pacific.

“Asia’s rig fleet is oversupplied, but only by about three to four rigs,” Cook says. “If they are taken from the region in 2017, it will be balanced.”

The region has seen 20 new discoveries in the last 18 months, with new play openings in Myanmar, the South China Sea, Vietnam, and Sarawak, offshore Malaysia. Active development programs include Australian LNG, deepwater India, and Indonesia’s Kutei basin.

Significant NOC involvement is in play in Asia, in addition to most supermajors that have plays in the region. Future frontier potential includes offshore Japan, New Zealand, Pakistan, Taiwan, and the Great Australian Bight.

“Asia is a gas export giant with growing local supply needs as countries develop; they have untapped oil opportunities that haven’t been realized yet, and very eager local governments,” Cook says. 

North America

Quest forecasts 330 new wells to be drilled through 2020, including 170 exploration or appraisal wells. In the near-term we are estimating about 60-70 total wells drilled per year, with rig supply and demand balancing at just over 30 units. There are currently 40 floating rigs contracted in North America including six idle rigs in the US Gulf of Mexico (GoM), where increased attrition is expected through mid 2017.

In the past 18 months, there have been 32 new discoveries, with new play openings offshore Newfoundland and deepwater Mexico. There are active development programs in Canada, Newfoundland, a number of programs in the GoM, including three new greenfield projects, and numerous brownfield jobs. 

Image of Leslie Cook, from LinkedIn.

“The great thing about the Gulf of Mexico is that it keeps people busy, not just from the greenfield standpoint, but from lots of tieback opportunities,” Cook says. “Operators in the area have very deep pockets, and significant investment in large future plays.”

According to Cook, the numerous brownfield opportunities in North America enable independent companies to operate hubs, as the big supermajors step away from their older hubs.

“There are also future opportunities for independent oil companies (IOCs) in Mexico’s ultra deepwater,” Cook says. “Maybe the opportunity isn’t just new licenses, but also partnering the Pemex with projects they’ve already drilled. Perhaps we’ll see projects move a little more quickly than it would if Pemex was operating it by themselves.”

Frontier potential in North America includes offshore Nova Scotia and the Bahamas. Cook also thinks that there may be a return to Cuba in the future.

North Sea

Quest currently forecasts 410 new wells through 2020, including 175 exploration and appraisal wells. In the near-term, the company is estimating about 70-80 total wells drilled per year, with rig supply and demand balancing at 30 units. There are currently 29 floating rigs contracted in North Sea regions.

“Depending on when some of the new Barents and Ireland exploration hits, we could be looking at rigs re-entering the North Sea market as early as mid-2017,” Cook says.

In the past 18 months, 32 new discoveries have been announced, with new play openings in the Barents from OMV, and Lundin and Hurricane’s Lancaster area in West of Shetlands.

There are roughly 10 different developments undergoing active drilling in the Norwegian and Barents Sea, some in West of Shetlands, and roughly eight drilling programs offshore UK.

According to Cook, the North Sea has numerous brownfield opportunities, even more than the Gulf of

Mexico, that offer significant tieback work in fairly moderate water depths.

Frontier potential for the region includes Ireland’s Porcupine basin, South and North Celtic Sea, Goban Spur Basin, and the Spanish Point prospect. Statoil recently announced their plans to return to the Barents Sea in 2017 with a six well program adding a needed boost to exploration activity.

“2017 could be a nice resurgence period for North Sea regions,” Cook says.

South America

Quest forecasts over 330 new wells to be drilled through 2020, including 110 exploration and appraisal wells. In the near-term we are estimating about 50-60 total wells drilled per year, with rig supply and demand balancing at 30 units. There are currently 37 floating rigs contracted in South America.

“Petrobras has proven that the pre-salt wells are very good and productive wells. A lot of the upfront work has been done in the early phases in getting those wells drilled and started,” Cook says. “The pre-salt prize is very significant. Additional IOCs could potentially come in and have their own stake in it.”

According to Cook, Petrobras is down to 34 rigs, with the expectation that it will reduce its rig count further by 2017. She believes that the firm may drop down to about 25 by next year, due to oversupply.

Quest’s data shows that there have been 32 discoveries made in the past 18 months in the region.

“We think of South America as the pre-salt prize, but there have been some exciting new plays outside of Brazil in Guyana and Colombia,” Cook says. “There is a robust pre-salt development campaign underway in Brazil, in addition to some development off Trinidad, and the Falklands program starting soon.”

Frontier potential in the region includes the Guyana-Suriname basin, deepwater Trinidad, Nicaragua, and Peru.

Categories: Vessels Deepwater Drilling North Sea Europe South America Asia North America Canada Gulf of Mexico Rigs Exploration

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