Global Offshore Drilling to Fully Recover by 2011 - Report

The global offshore drilling industry will stabilize this year but is unlikely to return to growth until 2011, according to independent business analyst Datamonitor. Following a sharp decline in 2009 caused by flagging energy demand, global drilling is predicted to rise 12% in 2010-2014 compared with the previous five years. Global spending is forecast to rise 33% over the period, translating into a total expenditure of $387 billion. Africa, which recently surpassed Western Europe in spending terms, looks set to be the boom market.

Recovery from recession

The global economic recession and its destabilizing effect on oil and gas demand had severe repercussions in the offshore drilling industry.

Last year saw across-the-board deflation in prices and delays in both shallow and deep water projects.

However, in early 2009 the supply/demand balance for oil had already stabilized, and by the end of the year service rates had ceased to
decline, although parts of the industry remained vulnerable, especially the low-end rig sector.

Datamonitor's projections, contained in a newly-published report, point to a return to overall stability in 2010 within the industry.

Numbers game

Nearly 18,000 offshore wells were drilled over the last five years, with numbers peaking in 2007. The forecast is of a recovery in 2010,
followed by consistently rising numbers up to 2013 to total over 20,000 wells over the five-year period.

"Around $291 billion was spent over the last five years on offshore drilling," said Dr Michael Smith, report author and consulting oil and
gas advisor at Datamonitor.

"Spend surged in 2005 to 2007 but rose only slightly in 2008 and declined in 2009.

"The forecast for 2010-2014 is a surge in 2011 and 2012 followed by a return to previous levels of growth but with a small drop-off in

Regional breakdown

Since 2005, when it overtook North America for the first time, Asia has attracted the highest volume of drilling spending. Around 60% of this occurs in Southeast Asia and the remaining is split between North Asia (primarily China) and South Asia (mainly India).

Datamonitor forecasts that spending in Asia will rise 24% over the next five years, after the sharp decline in 2009. Well numbers for the
whole period could increase by 9%.

North America will attract the second highest volume of spending over the next five years, the majority directed at the Gulf of Mexico. A
rise in spending of 30% is forecast over the period 2010-2014. Well numbers will jump by 7% after exceptional lows last year.

Africa now attracts the third highest volume of drilling spending having just surpassed Western Europe. Nearly 75% is directed at West
Africa -- primarily Angola and Nigeria -- while Egypt attracts most of the remainder. Spending is forecast to rise 55%, after small decline
in 2009, while well numbers are forecast to increase by 29%.

Dr Smith said, "Africa has enjoyed rapid growth in deep water spending which should continue over at least the next four years, despite a
slowing of exploration activity in the older deep water regions.

"Continued high spending levels are expected as ultra deep water discoveries are developed and as additional countries begin to drill
deep exploration wells.

"The African market continues to boom for deep water services with high specification rigs still in demand and many opportunities for a
wide range of services in a wide range of countries."

Eastern Europe & the Former Soviet Union (FSU) attracts only a small share of global offshore drilling expenditure.

"This is due," said Dr Smith, "to the region’s limited offshore areas outside the Caspian Sea, Sakhalin Island, the Russian Arctic and the
Black Sea."

However, spending is forecast to rise a substantial 74%, after an only modest decline in 2009. Well numbers for the whole period could increase by nearly 55%.

In Western Europe, by contrast, spending is forecast to rise just 5% and well numbers for the whole period are projected to fall by 8%. In
the Middle East, where spending and well numbers are forecast to rise 63% and 40% respectively, the Persian Gulf region will once again
become fundamental to supporting oil supply, increasing output to satisfy world demand.

"Over the long term Saudi Arabia, Iran and UAE will need substantially more wells than have been drilled in previous years to maintain and
increase both oil and gas supplies," said Dr Smith.