Europe. Unlike some NOC-dominated regions, North Sea projects rely heavily on cash flow, especially given their high capital expenses. Thus, this segment is expected to fall harder than the global average, about 6%. This also holds for Eastern Europe, which also doesn’t have traditional NOCs; that region will see a drop of about 13% in activity, to 334 wells. UK production seems to be steepening, down 8.3%, while Norway, with record completions in the midst of a large offshore EOR project to stem the decline in its fields, lost another 4.6% to depletion.
Russia/FSU. The Russian Federation slashed its oil export duty starting this month, in an effort to keep development profitable in the face of the global downturn. While it will remain one of the top drillers in 2009, we expect activity to be down just under 5% in 2009, with about 4,900 wells drilled. Production will likely continue to fall off, since output at Sakhalin-1 and -2, Kharyaga Field and other fields has fallen, resulting in a 1% decline for the year. Sakhalin-1 peaked at 242,000 bopd and is expected to hit 160,000 bopd this year. The “peak community” has already declared that Russian production has peaked and will now head permanently lower.
The country plans to improve production by making changes in taxation that will be favorable to exploration and production. The changes will be announced this winter.
In terms of reputation, Russia’s continual disputes with pipeline-transit country Ukraine anger European customers. The pipeline is once again shut down, this time in a dispute over what to charge, if anything, for gas that is needed to operate the pipeline. Ukraine says it needs 700 MMcfd (20 MMcmd).
A bright spot in the FSU was Kazakhstan, with at least a 5% increase in production. Startup of the long-delayed giant Kashagan Field is still, incredibly, at least four years away.
Africa. This underexplored continent should maintain its level of activity, led by Egyptwith 580 wells expected in 2009. Discoveries on the continent’s west coast continue to be made, while offshore Equatorial Guinea generating interest due to the discovery of Jubilee Field, a more-than-a-billion-barrel find.
Meanwhile, Tanzania and Uganda are becoming inland exploration success stories.Sudan continues to drill aggressively despite ongoing war and international sanctions, and is actually forecast to increase drilling slightly in 2009. The same cannot be said forNigeria, where ongoing violence has kept some drilling and especially production in an “on/off” mode despite the government’s efforts.
Angola, now an OPEC member, has apparently cut its production by about 100,000 bopd to comply with its quota. While attrition could easily make the cutbacks unnecessary, the country still says that it plans to drill more than 100 wells a year for the next decade. Angola has enough projects underway or planned that, if realized, it would have to make a decision between OPEC compliance and producing well over 2 million bopd. International operators were reportedly instructed by state company Sonangol to curb production starting Jan. 1, but that remains to be seen.
Middle East. The region as a whole will see a small reduction in drilling, in large part due to OPEC quotas, which are best met by allowing natural decline to set in rather than actually shutting in wells. Saudi Arabia will lead the way with a 6% drop. The kingdom has recently completed projects that resulted in production gains, such as startup of the Khursaniyah facilities within the AFK complex-hence the 6% increase last year. Thus, actual shut-ins will need to occur to achieve the desired OPEC production cuts.
Qatar has been raising al-Shaheen Field output, among others, resulting in a 2.2% increase. Meanwhile, Iraq is back up to its former glory, resulting in 2.45 million bopd, a 12.5% boost in production. Much of the increase came from the north. Platt’s Oilgramsays that about 100,000 bopd is “missing” and is valued at $3 billion. This is up from last year’s 59,000 bopd. The newsletter said that it arrived at the missing oil figures after doing material balances of production/supply vs. exports. New oil laws and near-term tenders should see robust drilling in the country within the next year or two. Some of these will be Western-style IOCs. Hopefully, we will get some rig and drilling data by then.
Far East. Now that global demand for China’s factory goods has plummeted, the country plans to spend to sustain growth. It must do this, since, once an agrarian society has become accustomed to work in factories and life in the city, there is simply no turning back. To avoid the unemployment of tens of millions and the threat of riots, China will use its ample cash reserves, much of which is from the US, to sustain its economy at what the government hopes will be a 6% growth rate. This spending will keep drilling and production relatively flat-which is actually a drop from previous years of relentless increases.
Despite the problems of the global recession, the country should maintain 19,730 wells to be drilled in 2009. According to the International Energy Agency, China’s petroleum demand fell 2% last year. Demand is expected to rise this year, but only by 1.1%, down from the 4.2% forecast by IEA six months ago.
Despite the country’s decision to leave OPEC due to the fact that it is no longer a net exporter of oil, Indonesia continues to fight the decline curve, with oil and gas revenues up over 60% in 2008 from the previous year. The country should drill 1,040 wells in 2009, 5.5% down from last year.
India seems almost immune to the global economic woes. ONGC is still drilling as many wells as it has for the last 18 months, as rig counts are steady. One way the nation is trying to keep its economy on track is to keep domestic fuel prices low, even if by decree.
Offshore. We expect offshore drilling to be off only 3.6% outside the US this year. This assumes that OPEC is successful at quota compliance levels of about 50%, and a global Great Depression Part II does not ensue. South America will fare the best-actually up-due to Brazil’s commitment to its offshore fields and new subsalt plays, while the US Gulf of Mexico will see only a modest falloff, largely due to deepwater commitments. We expect jackup day rates to crash in the first half of the year, leading operators to reevaluate the economics again in the second half, putting some back to work.
