The Oil and Gas Industry – Who’s Feeling the Pinch? - Zoedale Blog

The Oil and Gas Industry – Who’s Feeling the Pinch?

Fresh from Offshore Europe a Guest Blog by Oil and Gas Industry consultants Douglas Westwood.

With the Brent and WTI oil price benchmarks plunging over a half on the year, massive changes are being felt across the oil and gas sector. Onshore producers have been quick to scale back on spending whilst offshore players are frantically revising development plans to ensure project stay economically viable in the long term.

The biggest effect is surely to be felt in the US shale plays, where the price crash has led to heavy job losses and reductions in rig fleets. Thus, Douglas-Westwood (DW) expect the number of onshore wells spudded in the US in 2015 to be 42% lower than 2014. The result of this will be a peak year for oil output, with 2016 seeing the first decline for over a decade.

China’s onshore sector will also feel the full force of the market downturn. State-owned PetroChina has been scaling-back on costly polymer flooding programmes that are simply uneconomic at current oil prices. These operations had been stabilising production from the large, mature oilfields in the central and eastern areas of the country. DW expects Chinese onshore oil output to decline from 3.7 mmbbl/d in 2015 to 3.3 mmbbl/d in 2021.

Onshore activity in the Middle East will experience both drilling and production growth as a result of the region’s OPEC members’ willingness and need to sustain oil output. Saudi Arabia’s stance on defending its market share as well as redevelopment programmes in Kuwait and the UAE will contribute to drilling and production growth. DW predicts Iran will contribute only marginally to the Middle East’s onshore production growth. Despite the imminent lifting of economic sanctions and ambitious production targets, DW do not expect any significant production gains in the medium term due to chronic underinvestment in infrastructure as well as many historically-producing fields requiring significant workover operations in order to increase output.

The offshore oil and gas sector is set for a slightly brighter future. In the medium term, projects already committed to will support both drilling and production. However, significant long term growth is unlikely as low commodity prices impact on project sanctioning.

Oil Rig

Shallow water (less than 500 metres water depth) production will see large gains over the next two years as output ramps up from Iran’s mammoth South Pars development and the first of Australia’s LNG megaprojects (Gorgon and Wheatstone) begin production. Mature regions will also experience growth as a host of projects (sanctioned pre-price drop) in the North Sea lead to the first production increases in nearly two decades. In Asia, India and Malaysia with see medium term increases as brownfield redevelopment programmes are implemented by NOCs ONGC and Petronas. DW forecasts the number of shallow water wells drilled globally in 2015 to drop 11% on the year before stabilising in the long term.

DW’s deepwater outlook is positive despite the market downturn. International oil companies (IOCs) have sustained expenditure in the historical deepwater region of West Africa. In the US Gulf of Mexico, the recently-installed Delta House, Jack/St. Malo and Lucius floating platforms are the headline projects in nearly 550,000 boe/d of production capacity to be added before the end of 2016. In the long term, the North Sea will experience a ramp up in deepwater activity while IOCs will begin to exploit East Africa’s vast deepwater gas reserves from the end of the decade.

While the market downturn has led to many well-documented spending cuts and project cancellations by both private- and state-owned oil companies, DW expect OPEC’s firm defence of its market share and the continuing success of the deepwater sector to sustain the supply glut in a least the medium term.

Matt Cook

Analyst, Douglas-Westwood

mc@douglaswestwood.com

+44 (0)1795 594 735

 

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