This year has seen US land drilling activities fall to the lowest levels on record.
Globally we are seeing a very nuanced and regional reaction to the current oil price downturn. Examination of the global land rig fleet (which Douglas-Westwood tracks on a rig-by-rig basis) reveals some key themes.
Having dominated the global land drilling market for living memory, the number of US rigs drilling has been eclipsed by activity in other regions. In terms of absolute rigs working, Eastern Europe and the Former Soviet Union now occupies the top spot.
In terms of rate of growth (or otherwise) there are other bright spots of activity. Activity in the Middle East has remained robust and a 2% growth is expected in 2016. This compares to a 49% decline this year in the US. The comparative robustness of NOC spend is also evident in the rig data. We see that current NOC operators are responsible for 34% of the identified fleet vs 31% a year previously.
Like the operators, rig contractors themselves are focused on free cash flow. Efficiency of operations and uptime are critical, and key rig components are being recycled from one rig to another to minimize spend on new hardware. Where new rig components are required, our clients are reporting a trend towards increasing adoption of Chinese-manufactured parts. Efficiency and safe operations are also boosted by the continued uptake in automated rig equipment.
Older and less efficient rigs are being scrapped. Our data suggests that 16% of the North American fleet has been scrapped since January 2015.
Whilst we do not expect activity levels to return to the highs of 2014 anytime this decade, we do anticipate recovery from the present levels (just over 3,400 rigs) at a compound rate of 8% to reach over 4,700 by 2020.