Non-OPEC decline rates to remain stable

Through operational excellence programs and smart spending, operators have managed to maximize production and improve efficiencies, bucking expectations of an increase in decline rates, according to a new report from Wood Mackenzie.

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DRILLING & PRODUCTION

BeaubouefBruce BeaubouefHouston

Through operational excellence programs and smart spending, operators have managed to maximize production and improve efficiencies, bucking expectations of an increase in decline rates, according to a new report from Wood Mackenzie.

In fact, non-OPEC decline rates have remained stable since 2015. The new report, “Non-OPEC Decline Rates: Lower for Longer,” looks at the factors influencing this stability, how long it can be maintained, and the impact future shifting decline rates may have on the oil market.

Dr. Patrick Gibson, Research Director, Global Oil Supply, at Wood Mackenzie, said: “Decline rates are a critical factor influencing the current rebalancing of the oil market and price recovery. A 50% cut in investment in non-OPEC producing oil fields and a dwindling pipeline of new projects since the price crash should have led to progressively steeper decline rates. Nonetheless, decline rates have held steady at around 5% since 2015 and we expect they will remain at this level until 2020.”

Wood Mackenzie’s analysis shows that, annual decline rates for conventional fields peaked at nearly 7% during the last decade, or 2.4 MMb/d per year. However in 2014, they reached an historical low of just 3.6%, or 1.2 MMb/d. The price collapse saw decline rates increase to 5.1%, or 1.9 MMb/d in 2015, on the back of steep spending cuts. Decline rates have stayed at around that level since.

“Stable rates of non-OPEC decline is a disappointing story for those looking for significant price support coming from declining conventional production,” Gibson said. He added that improved operating efficiency and focused capital expenditure (capex) have helped maintain decline rates at current levels. Operators have maximized production rates by focusing on the best-performing wells, as well as targeting processes and maintenance programs so uptime is increased.

“Careful budgeting is also in play,” Gibson noted. “Slashed capex now predominantly targets short-cycle opportunities with high returns potential, while development plans and service-sector cost cuts have bolstered spending efficiency.”

While some shorter-term measures may relax, longer-term factors, such as increased production from ‘zero decline’ assets and early-life assets, will help keep decline rates steady. Wood Mackenzie says that its analysis shows early-life assets increasing their proportion of production from 6% in 2010 to 30% by 2020. The lower decline rates of these assets counter-acts the higher declines of more mature assets.

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New reports see lower offshore oilfield equipment spending in 2017-2021

The latest update to the Westwod Energy’s World Oilfield Equipment Market Forecast shows little movement in global spending expectations over the next five years. Thus far, the report notes that 2017 has seen a strengthening onshore rig count, led by US activity, but firms within the offshore sector have seen little abatement to the challenges presented over recent years.

The contrast between the equipment and service sectors is very evident, the report notes. Westwood’s recent Drilling & Well Services Market Forecast showed a sharper decline since the downturn but with a stronger growth outlook to 2021. The oilfield equipment sector, on the other hand, has been better-supported by backlogs since 2014 but faces a period of suppressed activity in the near-term.

Some of the report’s key conclusions include:

• Global expenditure to increase at 0.7% CAGR over the forecast – down from 1.1% last quarter.

• Offshore expenditure will total $244 billion over 2017-2021 – $9.5 billion lower than the previous forecast.

• Rising onshore expenditure (US driven) will be offset by declining offshore spend.

• Pricing pressures in the US onshore basins have cooled somewhat, though activity remains strong.

E&P related spend to account for 75% of global forecast total, up from 70% over 2012-2016.

“Canada’s oil sands and Brazil’s deepwater presalt play are adding a growing proportion of production, significant enough to offset global decline rates,” Gibson observed. “The oil sands alone could reduce decline rates by as much as 0.6% in 2020.”

Technology will also play a role in maintaining stable decline rates, as evidenced by developments in horizontal drilling, hydraulic fracturing, enhanced oil recovery techniques and CO2 flooding in the US, Canada, and Russia.

Beyond 2020, Wood Mackenzie expects decline rates will return to the historical norm of around 6%, and higher oil prices will be needed to incentivize investment in new production to meet a widening supply gap. Even moderate swings in average annual decline rates are capable of influencing the market; the rate of decline for non-OPEC fields is crucial to the global supply picture, the report notes. Even a 1% shift in annual global decline rates would have a significant effect on supply, potentially adding or removing 2 MMb/d by 2021.

“Our current modelling shows stable decline rates until 2020, then a widening to 6% in 2021,” Gibson said. “Although the present picture is one of resilience and smart spending, further gains remain unlikely. With investment so low, the industry is potentially storing up problems for supply that will not become apparent until after the end of the decade.”

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