At midday Aug. 11 the West Texas Intermediate price jumped $2.06 to $43.77, regaining much of the ground lost over the previous days. The price rollercoaster was in full swing, showing that forecasters still aren’t sure what direction prices are headed. Drilling contractors are hoping the upswing will continue.
Douglas-Westwood sees a silver lining on the storm clouds. In its World Land Drilling Rig Market Report, the company forecasted continued compression of the market in 2016 but market recovery over the following four years.
“The downturn in commodity prices had a significant impact on onshore drilling activity in 2015, with the total number of onshore wells drilled declining by 32% from 90,784 to 61,873 wells. This reduction in drilling activity had a detrimental effect on rig demand, with the global number of operational rigs falling by 25% from 6,334 to 4,746. The number of rigs engaged in drilling activity experienced a similar decline, falling by 24% from 5,427 units to 3,965, with Eastern Europe and the former Soviet Union [FSU] being the only region not to witness a reduction,” said Katy Smith, analyst and report author for Douglas- Westwood.
“Following announcements of further reductions to capital expenditure for 2016, Douglas-Westwood expects an additional decline in onshore drilling activity to result in further compression to the land rig market as operators adjust to working in a sustained low oil price environment. The global number of onshore wells drilled is forecast to decline by a further 21% in 2016, resulting in a 24% reduction in the number of rigs drilling,” she explained.
There is some light at the end of the tunnel. “The global number of onshore wells drilled is expected to increase at a compounded annual growth rate of 9% over the next four years from 49,128 wells in 2016 to 69,407 wells in 2020,” Smith said.
“Subsequently, the global number of rigs drilling is forecast to rise by 38% from 3,414 units in 2016 to 4,703 rigs in 2020. The global capable fleet size is expected to increase by 188 units over the forecast period, reaching 9,255 units by 2020. Eastern Europe and the FSU will account for approximately 49% of the additional units to the fl eet, as increased horizontal drilling activity in Russia results in rising demand for high-HP [horsepower] rigs,” she said.
Some areas could impact the rig count even more. “In Asia-Pacific, the total number of rigs drilling is forecast to increase by 8% over 2016 to 2020 despite a marginal decline in drilling activity. This is due to increased geological complexity as China seeks to develop its unconventional reserves,” Smith said.
It is encouraging to hear some positive forecasting for a change.
Contact the author, Scott Weeden, at slweeden@hartenergy.com.
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