DW: Movement in the Middle East


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Archived, originally published in June 2016

The Middle East has been a relative bright spot for upstream activity during the oil price downturn, Douglas-Westwood said in its May 16 edition of DW Monday. International land rig contractors, such as Saipem, are actively focusing their strategy and drilling campaigns on the region in the attempt to limit the negative impact of low oil prices.

Looking at drilling activity, it is clear why the Middle East is a good prospect for contractors hit by the falling rig count. Between 2014 and 2015, Douglas-Westwood's Drilling & Production Market Forecast saw global onshore wells drilled fall by a staggering 32% as operators slashed drilling campaigns. The Middle East - characterized by low lifting costs and containing almost half of the OPEC membership - was relatively immune from this decline, growing at 3%. Douglas-Westwood expects the Middle East to continue to buck global trends, anticipating another 3% increase in the number of onshore wells drilled this year.

Despite this growth, the region has not been completely exempt from the impact of the downturn - NOCs such as Saudi Aramco have slowed progress at a number of projects. Indeed beyond drilling & production, heavily commodity dependent Gulf producers have felt the strain on their finances. Non-OPEC member Oman has been hit particularly hard, with both Moody's and Standard & Poor lowering their credit rating - the latter to just one notch above junk status.

However, a regional reliance on oil exports is expected to support continued activity and there are clear bright spots within the region. Since economic sanctions were lifted in January, Iran has stood out as a potential golden opportunity for international rig contractors - Douglas-Westwood's Iran Oil & Gas Market Forecast expects demand for land rigs to increase at 6% to 2020. However, some bilateral US sanctions remain. This has created uncertainty with regards to payment - understandably a key concern for any potential entrant. This may restrict US based contractors from entering the market directly, therefore, the opportunity - at least in the short term - is likely to be most accessible to indigenous contractors based in the Middle East. As a result, it may be contractors in neighboring markets that find themselves with an early mover advantage.

Source: http://www.ogfj.com/articles/print/volume-13/issue-6/departments/upstream-news.html

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