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Plain sailing for Gulf offshore

Saudi Arabia and the UAE are pressing on with offshore drilling activity despite the slump

OFFSHORE rig activity in the Gulf is standing up surprisingly well to the stiffening breeze of austerity from a sustained period of low global oil prices. Saudi Arabia and the UAE in particular continue to offer opportunities for service companies that are fast vanishing in other corners of the globe.

Saudi oil minister Ali Al-Naimi insists that while the kingdom is being forced to take a range of cost-cutting measures, energy-sector development plans will continue. It is understandable, he said in October 2015, that “when prices fall, companies and governments reduce expenditure. But sustained and steady investment is important for an industry with such long-term horizons.”

His business-as-usual bullishness and emphasis on “sustained and steady investment” need to be taken in context. In mid-2013, when Brent was selling for more than $100 a barrel, there were predictions that the total rig count in Saudi Arabia would rise from around 130 to 200 by 2015. Today, the total remains close to 130, of which 17 are offshore, down from 26 this time last year, according to Baker Hughes, a services firm that provides such data.

Nevertheless, within budget constraints Saudi Arabia is pushing ahead with a number of projects, including ones to replace natural decline at the Manifa offshore heavy oilfield (0.9m barrels a day capacity) and the giant Safaniya field (1.5m b/d capacity), the largest offshore field in the world, which has been in production since 1957. The International Energy Agency is confident Saudi Arabia will meet its target of achieving a “steady stream of new developments, totalling 1.3m b/d of new production by 2020. If so, openings for offshore-rig providers are not about to dry up.

Determinedly pushing ahead, too, with offshore development is Abu Dhabi, also with 17 rigs operating in Gulf waters. The UAE authorities echo the Saudis’ insistence that fiscal pressures must not hamper energy-sector investment. Abu Dhabi is still on course to raise production capacity from 3.2m b/d to 3.5m b/d during 2017 – part of a $70bn investment plan launched in 2014. Much of this extra crude oil will come from offshore fields: Adma-Opco aims to increase capacity from 0.65m b/d to 1m b/d by 2020; and Zadco plans to raise Upper Zakum capacity from 0.6m b/d to 0.75m b/d in 2017, eventually reaching a plateau of 1m b/d. In the coming years, the UAE offshore production potential will match that from onshore fields.

With Kuwait’s unresolved dispute with Saudi Arabia over the Neutral Zone putting offshore development work there on hold, the only other area of rig activity in Gulf waters is off Qatar. Two rigs are involved in gas activities and two in oil. Qatar’s offshore oilfields are in slow decline and the government is pinning its hopes on sustaining 300,000 b/d output from the offshore al-Shaheen field. Several international oil companies have been invited to bid for the operation and development of al-Shaheen when Maersk’s exploration and production-sharing agreement runs out in the middle of 2017.

The hope of all the Gulf states is that by then global oil prices will have recovered sufficiently for current and planned offshore programmes to be carried out without being blown off course by the winds of austerity.

This article is part of an in-depth series on offshore production. Next article: Asia offshore drilling drops.

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