Global onshore rig counts (excluding China and Russia) have climbed steadily since mid-2016 (Figure 1) and now sit at 1,822, ~62% above their lows but still below the peak of 3,549 achieved in February 2012.
FIGURE 1 | Land Rigs (Ex. China and Russia)
Canadian and US onshore rigs have been the most price sensitive, experiencing the sharpest drop during the 2014-16 oil price slump (Figure 2). Canadian and US onshore rigs have bounced back, up 168% this year to 1,092 from the May 2016 low mark of 422. The rise in absolute rig count is amplified by an increase in well productivity and drilling efficiency gains.
FIGURE 2 | Onshore and Offshore Rigs Working in Canada and US
Although US onshore rig count has risen by ~100 % from August 2016, the offshore rig count has been slower to respond and is tracking below the trailing five-year range to date in 2017 (Figure 3).
FIGURE 3 | Historic US Onshore and Offshore Rig Count
This low level of offshore activity as observed in the US has also been seen globally (Figure 4). Within NOCAR (a RSEG-coined term for non-OPEC, non-Canadian, non-American and non-Russian output representing 24.2 MMbbl/d of total liquids production), the offshore rig count currently at 150 compared to a peak of 275 in 2013. While the increase in oil prices sparked a resurgence in L48 onshore rig activity, NOCAR rigs have been relatively slow to response, with both offshore and onshore rig activity currently tracking at or below the trailing five-year lows (Figure 5).
FIGURE 4 | Global Offshore Rigs (ex. China)
FIGURE 5 | Historic NOCAR Onshore and Offshore Rig Count
While RSEG expects reduced activity levels in most countries will lead to declining production within NOCAR, certain areas have remained stable or are poised to grow. We expect Brazil and Kazakhstan to ramp up production as both countries benefit from pre-investment in large-scale projects. Similarly, the Norwegian rig count (100% offshore) has remained relatively flat through the cycle, averaging ~17 rigs for the last 10 years (Figure 6). We believe Norway’s activity is explained by the mature nature of its resource base. Most drilling projects are extensions to previous projects or tiebacks. Ample infrastructure and facility capacity in the North Sea translates into low go-forward breakevens, allowing Norwegian operators to remain active in low price environments. But the lack of large-scale exploration inventory inhibits the country’s ability to grow production even at higher oil prices.
FIGURE 6 | Historic Norway Production and Rig Count