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Westwood forecast: Global oilfield spending to reach $156 billion in 2021

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Spending by three countries – US, China and Russia – is expected to be the major drivers of onshore drilling activity from 2021-2025. Together, the three countries are expected to account for 62% of total forecast spend.

Global drilling & well services (DWS) spending is forecast to reach $213 billion by 2025, according to a new report issued by Westwood Global Energy Group. This growth trajectory highlights the improved market sentiment seen so far in 2021. It also follows a very challenging 2020, where DWS expenditure plummeted by an estimated 34% as the combined pressures of the COVID-19 pandemic and the oil price collapse hit the industry.

A combination of OPEC+ signaling a continued commitment to restricting production to help balance oil markets and promising progress with the global vaccine rollout should support higher prices and, subsequently, greater levels of drilling activity in 2021 compared with 2020. The commodity price environment remains highly sensitive, and Westwood expects activity levels to grow slowly, remaining constrained as the industry slowly recovers from one of the deepest pricing shocks on record.

Key conclusions of the report include:

  • 2021 expenditure of $156 billion forecast represents a small increase on 2020 levels, driven by improved commodity prices and demand forecasts, though operators remain cautious.
  • Total expenditure over 2021-2025 is forecast to total $950 billion. Year-on-year growth is expected, with spend in 2025 36% higher than 2021. However, spend is expected to remain below 2018 and 2019 levels throughout the forecast.
  • Global spend will be driven by onshore activity in three countries: US, China and Russia. Combined, these three account for 62% of total forecast spend, with the US leading with an estimated spend of $323 billion 2021-2025 compared with $150 billion for China and $118 billion for Russia.
  • Latin American spend is anticipated to grow strongly, driven by continued offshore activity in Brazil and the emergence of Guyana’s oil & gas sector.
  • Rig & crew services expected to lead spend with $280 billion forecast over 2021-2025, 29% of total spend. This is expected to be followed by stimulation services, with an estimated 21% of total spend, driven by US activity.

US leads Global spend but Russia and China show growth

While the US will still lead spend globally, drilling activity in 2020 was severely reduced on recent years, causing spend to fall by an estimated 48% on 2019, which itself saw a decline of 10% on 2018 following operator CAPEX cuts as the oil price stagnated. US drilling and well services expenditure is expected to grow over the forecast, reaching $75 billion by 2025, though it is not expected to return to 2018-2019 levels as operators are expected to remain cautious with drilling campaigns, while the Biden administration’s indication of tougher legislation around oil and gas adds additional uncertainty.

Conversely, both China and Russia are forecast to experience growth in forecast expenditure compared with the previous five-year period. In China, investment into shale production to meet government mandated targets is expected to drive demand for drilling and well services with spend reaching $32 billion by 2025, 19% higher than 2021. Meanwhile, Russia will dominate spend in EE & FSU with high levels of drilling activity to maintain market share and meet export commitments. However, compliance with OPEC+ agreements may hinder drilling growth in the near term.

Driven predominantly by these three countries, an estimated 96% of all wells drilled are expected to be onshore. Despite this, onshore will account for only 76% of DWS expenditure over the forecast due to much higher dayrates for rig and crew services, longer average days to drill a well, and greater safety requirements for those drilled offshore in comparison with onshore.

While the US, China and Russia are expected to dominate onshore spend, Brazil and Guyana will be key countries for offshore DWS demand. Petrobras, which continue to expand deepwater activities as it divests other assets, is expected to drill more than 160 subsea wells between 2021 and 2025, with high associated costs due to the depth of the presalt wells. Guyana is also forecast to see high numbers of high-cost subsea wells drilled by ExxonMobil as the company continues to develop the discoveries in the deepwater Stabroek block.

Outside of Latin America, high drilling and well services spend is expected in the Middle East from a series of high-profile projects with high-grade material requirements, such as Qatar Petroleum’s North Field expansion, while continued projects in Norway and the UK will drive expenditure in Western Europe.

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