Image credits: Kees Torn, Flickr
News Article

Drilling Figures Shrink; Mexican Offshore Set for Recovery

By Peter Appleby | Wed, 07/15/2020 - 13:15

The global well drilling industry is set to endure its lowest year of activity for 20 years in 2020 after COVID-19 destroyed demand for wells, reports energy consultancy Rystad Energy. The firm believes that “around 55,350” wells will be drilled globally this year representing a 23 percent fall from the 71,964 wells drilled last year. According to the report, this number is “the lowest since at least the beginning of the century.”

As with other expectations for the industry, well drilling is expected to see a recovery of sorts next year. As the COVID-19 virus is controlled across the world, more economies will open, air travel will see a recovery and energy demand will climb. This means that Rystad is forecasting just over 61,000 wells to be drilled in 2021 and 65,000 in 2022. However, the consultancy points out that the industry is “unlikely to recover to 2019 levels soon.”

The global downturn and demand destruction that arrived following the pandemic has caused havoc across regions. In Mexico, companies like Murphy Oil have deferred their drilling campaigns amid the chaos, preferring to wait out the storm until a friendly price environment returns.

In an interview last month, Murphy Oil’s Vice President of Global Exploration Greg F. Hebertson told Mexico Business News that “the two to three-well exploration and appraisal campaign that we were planning to begin in late 2020,” following the company’s success with Cholula-1EXP on Block 5, would be pushed back. “Unfortunately, given the prices in the market and our subsequent need to reduce our CAPEX, we decided to defer the program,” said Hebertson.

Read the full interview here.

Today, OPEC released figures that suggested an improving picture for oil demand in 2021. Cited in El Economista, the report notes that the contraction of 29MMb/d that global demand witnessed in April 2020 in a year-on-year comparison will fall to only 3MMb/d by December.

Rystad Energy explains that the US market is most likely to be affected by the drilling downturn “with the country’s rig count already down to historic lows just a few months into the downturn.” The country’s fracking industry is among the markets that will suffer the most from the pandemic and price downturn as the costly fracking methods rendered activity economically unviable.

Mexico’s offshore activity is among the countries whose drill count should fare better during recovery, says the report. “Despite the overall stagnant growth, Brazil, Australia and China will continue to offer exciting opportunities in the short term with 20 to 40 percent growth prospects for offshore drilling in these countries while the UK, Guyana and Mexico look promising in the medium to long term.”

Several Mexican offshore developments will be entering early-production over the next couple of years, while others, like Eni’s AMT development, are already showing a return.

Merlin Cochran, Director General of AMEXHI told Mexico Business News in April that 2020 should provide more good news for production. “The companies with the highest likelihood of starting to produce this year are Fieldwood and Petrobal on Ichakil and Pokoch fields and Hokchi Energy on Hokchi field. According to the approved development plan of Ichalkil and Pokoch, which by its very nature must make certain assumptions, the fields could be producing 25Mb/d by the end of this year. Similarly, Eni’s Amoca-Miztón-Tecoalli area is producing close to 12Mb/d, while Eni believes it could reach another 10Mb/d. Hokchi is likely to be producing a further 15Mb/d to add to overall production figures this year.”

Read the full interview here.

Photo by:   Kees Torn, Flickr
Peter Appleby Peter Appleby Journalist and Industry Analyst