Global Oil anticipates a production recovery post oil price decline

The oil and gas industry forecasts a sharp drop in drilling, both in the United States and gloablly as a result of downward crude oil prices. The projected oil price should reach $55.75 a barrel, with Brent at $58.80 / bbl. A Henry Hub natural gas price of $3.35/MMBtu is expected.


If crude oil prices remain below $50/bbl, there will be a dampening effect on oil-directed exploration and production (E&P) activity in regions of the world that are burdened with high break-even costs. Projects in the Arctic and other high-cost frontier areas, unfunded heavy oil projects in Canadaís oil sands, and low-margin shale plays in North America could be affected.


Given these factors and analysis the forecasts are:


U.S. drilling will drop over 9,000 wells in 2014.


U.S. footage will go down 20.9% to 315.1 million feet.


U.S. Gulf of Mexico E&P activity, particularly deepwater work, will continue at a lower level. If oil prices remain depressed for an extended period, fewer new projects will be sanctioned.


Canadian activity will drop 30% to 7,362 wells, from 10,513 wells in 2014.


Global drilling outside the U.S. will fall 6.8% to 52, 889 wells, from 56,725 wells in 2014.


Global offshore drilling will drop 8.8% to 3,060 wells, from 3,356 in 2014.


In the U.S., liquids-rich shale plays are expected to bear the brunt of low crude oil prices, because of high break-even costs. Texas will experience an overall 23.4% decrease in new well activity to 13,911 wells. Particularly hard-hit will be the Permian Basin of West Texas (Railroad Commission Districts 7C, 8 and 8A), as well as the Eagle Ford shale of South Texas (Railroad Commission Districts 1 and 2). Texas led the nation in oil production at the rate of 3.491 million barrels of oil per day (MMbopd) in November 2014. That figure may begin to fall in the latter part of 2015.


Including federal OCS (offshore) output, Louisiana produced 1.427 MMbopd in October 2014. World Oil expects the state to experience an overall 18.1% drop in the number of wells drilled to 902, although the southern portion, which is devoted primarily to conventional oil drilling, will hold up better.


North Dakota, which produced 1.217 MMbopd in November 2014, will suffer a 30% drilling cut to 1,663 wells, due to reduced activity in the oil-rich Bakken shale play. Oklahoma, which encompasses both conventional oil, and shale oil and gas production, is expected to suffer a 21% reduction in the number of wells drilled, to 2,708.


One of the few bright spots in the U.S. is Pennsylvania, which is the core of the giant, gas-rich, Marcellus shale play. World Oil estimates that gas-directed drilling in the state will actually increase 1.1% to 2,255 wells.


Internationally, E&P activity in Western Canada is being subjected to the same market forces as the U.S. Overall, Canadian drilling is set to drop 30%. Investment in Canadaís oil sands extraction industry is dropping, and shale operators in the Horn River and Montney shales are cutting back on drilling. The one bright spot is offshore, on the East Coast.


In response to declining production, Mexico is ending its monopoly and holding licensing rounds to encourage foreign investment. State oil company Pemex is expected to boost drilling 19.1%, to 593 wells. Throughout South America, drilling is expected to decline 1.2% during 2015, to 3,551 wells. A stand-out in the region is Colombia, which is producing about 1 MMbopd. In Western Europe, drilling activity is expected to reflect weakness in the economy, with an 11.8% decrease to just 480 wells, including declines in the U.K. and Norway.


Activity throughout Eastern Europe, including Russia, is expected to drop 2.7% to 8,281 wells. In Russia, there will be a 2% pullback in drilling to 6,867 new wells. In January 2015, Russian oil production rose to a post-Soviet record of 10.6 MMbopd, indicating the country has yet to feel the effects of sanctions imposed last year.


Due to relatively low lifting costs, oilfield activity will remain fairly robust in portions of Africa and the Middle East that are not adversely affected by internal strife or political activity. Africa, overall, will drill 10.7% fewer wells, or about 1,408, with the two largest oil producers, Angola and Nigeria, expecting reductions. With OPEC throwing down the gauntlet of not reducing production, drilling in the Middle East will drop for the first time in nearly a decade, falling 11.2% to 3,053 wells. However, activity in Saudi Arabia will remain nearly even, at 573 wells.


In South Asia, which includes India, the worldís fourth largest net importer of crude oil, drilling activity is expected to drop 7.4%, to 521 wells. In the neighboring Far East, drilling is expected to increase less than 1%, to 27,225 wells. The region is dominated by China, which is under pressure to reverse declining production from onshore fields and increase exploration activity offshore. In the South Pacific, Australia is on track to take over, from Qatar, the mantle of becoming the worldís leading liquefied natural gas (LNG) producer, despite struggling with rising project costs and high labor rates. About 84% of the regionís 285 wells will be in Australia.


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