Global Drilling Stages Belated Comeback

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It has been a long time coming but upstream activity globally finally looks like it is responding to the post-Covid-19 price rebound.

The active rig count last month was up almost 40% over the same period in 2021, according to data from services giant Baker Hughes. However, activity still substantially lags pre-Covid-19 2019 levels in almost all countries (see table).

The US and Canada were standout performers. US output has disappointed many in Washington, as companies have focused on capital discipline rather than boosting drilling.

Nevertheless, the third-quarter rig count showed a 60% jump over 2021 levels, underlining that operators are responding to both price and policy stimuli.

Canada’s oil industry was devastated by the Covid-19 price slump. However, the October active rig count is more than three times its 2020 lows.

It is one of the few countries whose activity now significantly exceeds pre-Covid-19 levels.

Another exception is Egypt, which by renegotiating its upstream contracts to incentivize drilling, never really experienced a significant Covid-19 slump. Currently its active rig rate levels are up more than 20% versus pre-Covid-19 levels, according to the data.

Latin America is another relative bright spot, with October activity up around a third compared to last year’s average.

Argentina’s upstream industry was especially hard hit by the Covid-19 price drop, with the number of active rigs tumbling from over 70 in late 2019 to average just four in second-quarter 2020. The rig count has now been back in the high 50s for the past three months.

Europe and Asia are showing a relatively feeble bounce-back of 13% and 6%, respectively.

It is noteworthy that Asia appears to have been the region least impacted by Covid-19, with its active rig levels falling just over 15% in 2020, reflecting the determination of regional national oil companies to maintain domestic production.

In Africa, there is mixed news for Nigeria and Angola. These two sub-Saharan Opec heavyweights have consistently underperformed since Covid-19 and a lack of investment has seriously eroded their production capacity. Both have failed to hit their Opec target quotas since 2020.

Angola at least might have some reason to hope for a recovery, with a 50% rise in its active rig count in October compared to average levels seen from January through August.

But the outlook for Nigeria looks bleak. Its active rig levels fell to just seven in fourth-quarter 2021, after averaging 16 in 2019. Activity there had started to make a comeback, but fell away badly in the last couple of months, hitting eight rigs in October.

The Baker Hughes data has been a touchstone for measuring upstream activity for decades, although it can present a narrow snapshot of drilling as it focuses on rigs drilling new wells and excludes certain workover activities.

Active Rigs Ex-Russia
 201920202021Q1'22Q2'22Q3'22Oct '22%Chg. Oct '22 vs. Oct '21%Chg. Q3'22 vs. Q3'21
Middle East41433726529230530732523%16%
Saudi Arabia1159362707171792715
Abu Dhabi625342384748512114
Latin America1901071401571591721883423

Rig Count, Offshore Oil and Gas, Conventional Oil and Gas, Deepwater
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