Rystad Energy: Outlook for the Global Drilling and Well Services Market

Posted by OilVoice Press - OilVoice


Driven by higher activity, the drilling and well services market is on a growing trend across all service segments. More than 72,000 wells are expected to be drilled and completed in 2019, representing a 3% growth compared to 2018.

Looking back at the downturn, well completion activity was at its lowest in 2016 after dropping 44% in just two years. Since then, oil prices have improved resulting in more focus on wells, yielding more work for drilling and well service providers. Since 2016, drilling and completion activity has grown 30%, and we expect activity to grow at an average annual rate of 4% towards 2021.

The number of new wells drilled and completed is a commonly used metric for assessing overall activity in the oil and gas industry. However, a well does not imply the same characteristics across all parts of the world. Understanding the characteristics of the different geographic markets is critical for understanding the impact of additional activity for specific drilling and well services.

Although the offshore segment represents a small portion of overall activity, the additional complexity of developing fields at sea requires these fields to be developed using fewer and more efficient wells compared to conventional onshore fields. To achieve this, offshore wells must be designed to obtain higher production rates and more technology is typically utilized during construction of the well and installed in the well on completion. The offshore segment has, however, been slower to react to improved oil prices, and it is only next year that offshore investments and drilling activity is expected to revert to growth.

The offshore drilling industry is typically treated in two separate segments, namely jack-ups and floaters. Floaters, which includes semisubmersible rigs and drillships, are used for drilling operations in mid- and deepwater depths, and the main markets are Northwest Europe, Brazil and West Africa. Looking at the demand for floater rigs, the North Sea is driving short-term growth in this segment, while Brazil and West Africa will lift demand in the medium-term. Jack-ups, on the other hand, are used for drilling operations in shallow waters and their main markets are located in the Middle East and Asia.

Onshore accounts for the largest proportion of global drilling activity with nearly 67,000 onshore wells being drilled this year. Although several countries have large volumes of shale resources, North America is by far the dominant region. Here, booming growth in shale has caused unprecedented growth in demand for high-spec rigs to achieve long horizontal wells and within hydraulic fracturing services to stimulate the wells. In some regions, this growth has led to infrastructure bottlenecks, such as the Permian were the takeaway capacity for produced hydrocarbons, trucking of proppant to well sites and, most recently, electricity supply are frequently mentioned as constraining growth factors.

Since global drilling activity bottomed-out in 2016, North American shale is the primary market for growth. Last quarter, drilling and well services oilfield majors Schlumberger and Halliburton reported that markets in the other regions of the world are contributing with a combined revenue growth rate comparable to that in North America.

Amongst the countries with the most pronounced growth is Russia. Here, growth is driven by high levels of infill wells drilled in an effort to counteract the natural production decline in depleting fields. Making this market even more interesting to follow, the share of horizontal drilling in Russia has increased significantly over the recent years, which opens up new opportunities for specialized well services and will increase the technical requirements of the country's drilling rig fleet.

Another region for drilling and well services providers to keep an eye on is the Middle East where several companies have communicated an intent to increase their drilling activity. We have seen multiple agreements this year related to orders of newbuild rigs and land rig transactions in the region. Looking at the long-term, development of shale resources in countries like Argentina, China, Russia and Mexico could potentially open new frontiers for internationally-focused drilling and well service companies.

Driven by increasing drilling and completion activity, global drilling and well services spending is expected to grow at an average annual rate of 6% towards 2021. Understanding the characteristics of the activity is crucial for understanding how the drilling and well services market will develop. With offshore drilling reverting to growth, offshore drillers purchases are expected to grow the most at an average annual rate of 9% towards 2021. Driven by shale, land driller and stimulation services purchases are expected to grow 7% and 6%, respectively.

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