By John Kemp
LONDON, March 4 Drilling for oil and gas
deposits outside North America has hit the highest level in
three decades, led by big exploration and production programmes
in the Middle East and Africa.
More than 1,300 drilling rigs have been operating on average
over the last six months, the greatest number since 1983,
according to oilfield services company Baker Hughes.
The number of rigs is up 20 percent compared with 2008 and
has more than doubled since hitting a nadir in 1999.
The boom is being led by the Middle East, where the number
of rigs operating has tripled since 1999, and Africa, where the
rig count is up almost four times.
Rig counts reported by Baker Hughes do not include onshore
China, Russia, the Caspian and certain other countries.
According to the company, more than 400 onshore and offshore
rigs were drilling in the Middle East in December and January,
the greatest number since the 1970s.
Over the last six months, Iraq averaged more than 90, up
from zero in 1999, when the country was still under U.N.
Saudi Arabia also has more than 90, up from fewer than 20 in
Kuwait, too, is witnessing a drilling revolution, with more
than 30 rigs, three times as many as at the turn of the century.
In Africa, the boom is led by Algeria (almost 50) and Angola
(13 offshore). In both cases drilling has tripled over the last
These five countries alone account for 30 percent of the
increase in drilling outside North America since 1999.
All are very mature oil producers, with well-surveyed
resources and large conventional oil and gas fields.
In recent years, observers have focused on the development
of unconventional shale reservoirs and technically challenging
frontier resources in ultra-deep water off the coasts of South
America and Africa as well as in tough environments such as
Central Asia and the Arctic.
But a sustained period of high prices is also revitalising
some very old and decidedly conventional plays.
Some of this drilling is needed simply to replace falling
output from ageing fields as the natural field pressure declines
and the amount of produced water rises, so it will not
necessarily translate into net additions in production.
Analysts note much of the easiest oil has already been
produced, so more drilling is needed just to maintain output as
producers target smaller, deeper and more geologically demanding
However, the point remains that exploration and production
activity is rising strongly in some of the oil industry's most
The boom's extent has been masked by production losses from
Iran, Libya, Syria and South Sudan resulting from sanctions and
But putting aside these politically induced output
disruptions, underlying production potential has expanded
significantly in the past three years as a result of the heavy
Since mid-2013, most major integrated oil and gas producers
have announced reductions in their capital expenditure
Suppliers of a range of oilfield services, from seismic
surveying to drilling contractors and pipeline producers,
reported that the market is softening.
Rig counts could fall in the months ahead.
But the expenditure slowdown is likely to be concentrated in
large-scale megaprojects, costing $1 billion or more, and
employing groundbreaking technology.
For these complex projects, the risk/reward ratio no longer
appears attractive in a world where shale oil is available for
under $90 per barrel and engineering costs have spiralled.
Technologically straightforward conventional plays in the
Middle East and onshore Africa are likely to be unaffected. In
fact, the region's conventional plays will start to look
In some instances, such as Saudi Arabia, rigs are under
contract to national oil companies so relatively immune to the
capex cycle that affects the investor-owned majors.
The main challenge remains political risk, including
contract negotiations, physical security and the potential for
Like everything else in the petroleum industry, the full
effects of the recent surge in exploration, production and
development activity will be felt only with a delay.
Oil and gas output should therefore remain healthy for the
next two-three years despite the sharp reductions in capex
announced by the majors. If some of the political losses from
Iran, Libya and South Sudan can be reversed, supplies will be
The rush to raise petroleum production has stretched the
global supply chain to the limit since 2006, with cost inflation
leading to profoundly disappointing performance in the
exploration and production business.
The industry is now moving into the next phase of the cycle,
where producers should reap some of the benefits from expensive
past investments, while costs begin to adjust down to a more