2020 oil, gas drilling to hit at least 20-year low

The number of drilled wells globally is expected to reach around 55,350 this year, said Rystad Energy, the lowest level since at least the beginning of the century as oil and gas activity, including the drilling market both in terms of wells drilled and related demand for drilling equipment, has been stymied by the COVID-19 pandemic.

The decline is a staggering 23% fall from 2019’s number of 71,946 wells. Rystad Energy’s forecast, which extends to 2025, does not expect last year’s number to be met or exceeded within the considered timeframe.

Drilled wells are expected to partly recover to just above 61,000 in 2021, as governments ease travel restrictions, boosting oil demand and prices. Then numbers will rise further to just above 65,000 in 2022 and remain just below 69,000 until the end of 2025.

North America is likely to be most affected, with the country’s rig count already down to historic lows just a few months into the downturn. Although modest recovery is possible in second-half 2020, drilling activity will remain more than 50% below the levels seen at the same time last year.

Of the 55,350 wells to be drilled in 2020, 2,238 are offshore and 53,112 are onshore. Before the pandemic, Rystad Energy had expected total wells to rise year-over-year to 74,575, of which 2,896 would be offshore wells and 71,679 onshore wells.

“Both new wells and drilling lengths will be pared down as E&P’s scale down investments, affecting the entire supply chain associated with these services. This includes drilling tools, which will decline by 35% in 2020 compared to 2019,” said Reza Hassan Kazmi, energy services analyst at Rystad Energy.

Drilling tools

When looking at drilling tools, Rystad Energy includes blowout preventers (BOPs), downhole drilling tools, drill bits, drill pipe, jars, drill collars, and other drilling tools except downhole pumps used for artificial lift, under the generic service segment.

Drilling length, another key driver for drilling tools, especially for drill pipes, drill collars, heavy-weight drill pipes and drill bits, is also estimated to drop by 25% this year before improving in 2021. At a more granular level, such as the regional or country level, the percentage decrease in wells will not always result in a proportional reduction in total drilling lengths, as drilling depths per well could greatly vary between different regions and countries.

From the demand standpoint, Rystad Energy expects that onshore and offshore purchases for drilling tools will drop from to $10 billion in 2020 from $16 billion in 2019.

Besides North America, Africa and Russia will be the biggest contributors to this loss, where purchases will drop by 36% and 27% respectively this year. Russian operators are likely to delay the drilling of new wells on mature assets to ensure compliance with agreed production cuts, while Sonatrach will cut back most of its spending on projects such as Hassi Messaoud and Tin Fouye-Tabankort.

In the medium term however, as major E&Ps resume developing their lineup of offshore projects in Africa, the demand for drilling tools (especially for drilling risers) is expected to increase.

Overall, onshore markets are expected to recover as early as 2021 and grow at a rate of 7% annually towards 2025, while offshore markets will see some highs and lows and will maintain an overall flattish level towards 2025.

Despite the overall stagnant growth, Brazil, Australia, and China will continue to offer opportunities in the short term with 20-40% growth prospects for offshore drilling in these countries while the UK, Guyana, and Mexico look promising in the medium to long term. The US remains the hotspot for spending on drilling tools onshore, while Norway is expected to top the list for offshore drilling tools spending.

In the US onshore market, more than 80% of drilling tools spending will be for shale drilling. The Permian and the Appalachian basins will drive 60% of total shale spend on drilling tools followed by some conventional activity in other basins.

Off the coast of Norway, Troll, Balder/Ringhorne and Johan Sverdrup will drive the demand for drilling tools.