FIGURE 3 OFFSHORE RIG SECTOR SPENDING SHARES IN 2008
Much of this spending can be ascribed to increased costs while well numbers grow at a slower rate. This results from more expensive well types in both shallow and deepwaters and general inflation. All cost sectors have shown similar patterns of growth, although rig costs have surged most rapidly since 2005 and are consequently expected to fall more in 2009. In 2006 and 2007 there was a disproportionate surge in rig costs as the high specification, high day-rate rigs most required were in short supply. A wave of new rigs are now entering the market and modest declines in rig utilisation are expected over the next two or three years. In broad terms the cost of the rig may be between 20% and 40% of the total well cost. Because of the need to deviate wells, the rig costs, as a percentage of total costs, are generally higher for development wells. In 2008, rigs are estimated to have represented an average of 37% of total well costs, of which 42% was spent on semi-submersibles and 35% on jackups. A little under 40% of rig costs were used to drill deep water wells. Global rig spends had been increasing dramatically since 2004 both as a proportion of well costs related to deep water drilling increases (where the rig costs command a greater proportion of total costs) and due to inflationary effects. However, spends stabilised in 2008 and are expected to decline in 2009.
Regional Activity
Global drilling spends have increased over the last five years but there is disparity across the regions due to a shortage of shallow water exploration prospects and expanding installation of production systems in deepwaters. Perhaps only 20% of sedimentary basins with shallow water production also have deepwater potential. North America spends have been maintained almost entirely by deepwater development drilling in the Gulf of Mexico. A rise of 20% over the period 2009-2013 compared with 2004-2008 is forecast, although well numbers are expected to decline by 10%. The region is vulnerable to hurricanes making prediction uncertain. Asia took the largest share of spending but relative spends flattened in 2008 due to a lack of drilling opportunities in its mature shallow water
June 2009
acreage, except off China. Spends are forecast to decline in 2009, remain flat in 2010 and then begin increasing again as new deep water opportunities are exploited off India and in the South China Sea. Malaysia and Indonesia have significant ongoing deepwater projects and India is developing deepwater gas fields off its eastern coast. The Asian market will return to strength by mid-2010 with a wide range of opportunities, especially as China, India and Vietnam look to exploit their more distant offshore shelves. Western European spends declined significantly from 2002 to 2004 but increased activity in the North Sea led to a surge in spending from 2005. Spending is expected to generally be lower through to 2011 as prospects continue to diminish, but recover a little after tax relief and higher oil and gas prices impact the commerciality of smaller projects. After a sharp decline in 2009 spending is forecast to rise 5% over the forecast period compared with 2004-2008 although well numbers reduce. Deepwater spending is modest due to a lack of deepwater basins outside limited areas of Norway, the UK and the Mediterranean. In Africa, progressive exploitation of deeper and deeper waters has driven growth. However, a dip occurred in Africa in 2008 and this is expected to be repeated in 2009 before steady growth returns up to 2013. Steady growth is also expected in Latin America, after a small drop in 2009, with Brazil and Mexico most active. The three remaining regions are less significant, although in percentage terms all three (Eastern Europe & the FSU, the Middle East and Australasia) saw big increases in spends up to 2007. In 2008 only the Middle East continued to grow, but a dip is expected in 2009. Growth is forecast to return through to 2013 with low cost drilling in field developments dominating in the Persian Gulf and higher cost deepwater or environmentally difficult wells dominating elsewhere. The market in these regions is expanding but there are relatively few operators.
Global Outlook
The 2008 oil price spike had a huge effect on oil
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Source: `The World Offshore Drilling Spend Forecast 2009-2013'