COVID-19 keeps exploration, production at record low
• Offshore service vessels witness 40% cost cuts
Impacts of the COVID-19 pandemic may keep exploration and production (E&P) activities in the oil sector low till 2025, as the drilling market both in terms of wells drilled and related demand for drilling equipment remain gloomy.
Indeed, the number of drilled wells globally is expected to hit the lowest, standing at 55,350 this year, analysis by research group, Rystad Energy, has shown.
This comes when there are reported 40 per cent cost reduction in Offshore Service Vessels (OSV) in the West African region, especially Nigeria, where the national oil companies insists on reducing cost of oil production to $10 per barrel.
With the impacts of the pandemic on oil prices as well as production cuts imposed by the Organisation of the Petroleum Exporting Countries (OPEC), the Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Mele Kyari, had hinted on shut-in of wells in the country.
While Nigerian rig count fluctuates, it has continued to fall through the 2016-2019 period ending at 15 in 2019. Crude oil rigs increased to nine in June from eight in May of 2020, down from 23 in February, and 14 in January, 2020.
Some oil companies, especially ExxonMobil, had earlier terminated contracts for the jackups Gerd and Groa offshore Nigeria, reducing the number of rig activity.
Gerd and Groa, owned by Borr Drilling, were on locations in Asasa and Oyot fields in Oil Mining Leases (OMLs) 67 and 70, respectively, as at early April 2020.
Rystad Energy had noted that the decline was a staggering 23 per cent fall from 71,946 wells in 2019.
“Our forecast, which extends to 2025, does not find it likely that last year’s number will be met or exceeded within the considered time frame. Drilled wells are expected to partly recover to just above 61,000 in 2021, as governments ease travel restrictions, boosting oil demand and prices. Then numbers will rise further to just above 65,000 in 2022 and remain just below 69,000 until the end of 2025.
“North America is likely to be most affected, with the country’s rig count already down to historic lows just a few months into the downturn. Although modest recovery is possible in second of 2020, drilling activity will remain more than 50 per cent below the levels seen at the same time last year,” the group noted.
From the 55,350 wells to be drilled in 2020, 2,238 are offshore and 53,112 onshore. Before Covid-19 struck, Rystad Energy had expected total wells to rise year-over-year to 74,575, of which 2,896 would be offshore wells and 71,679 onshore wells.
Energy Services Analyst at the firm, Reza Hassan Kazmi, had noted that both new wells and drilling lengths would be pared down as E&P’s scale down investments, affecting the entire supply chain associated with the services.
Kazmi said the affected chains included drilling tools, which would decline by 35 per cent in 2020 compared to 2019.
While Nigeria and Angola produce about half of the oil in the West Africa region, the countries have about 65 offshore production systems but COVID-19 has drastically affected the market.
Also, London-based industry watcher, Rivieramm, stated that over 40 OSVs have left Nigeria, while there are approximately 80 vessels idling in or around Port Harcourt, presently.
Rivieramm was also of the opinion that the signing, in November 2019, of the Deep Offshore and Inland Basin Production Sharing Contract Act did not add any increased incentive for further investments from the oil majors.
“While the aim of the government seemed to be to increase revenues in the short term, the decision put the brakes on a number of projects from the oil majors due to the revision of the cost base,” the group wrote.
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