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Baker Hughes: Rig Count 2020

Baker Hughes has published its 2020 global operating oil and gas rig totals. Its reports have been produced for North America since 1944 and globally since 1975, calculated using their own methodology. A change in the number of rigs may be indicative of the level of business activity in the oil and gas sector and form the basis for forecasting future oil and gas production.

This year’s data presents a significant observation; there has not been such an annual drop in the number of operating rigs for many years. In December 2020, per the report, only 1104 drilling rigs remained in operation, compared to 2043 in December 2019. This represents a decrease of 46%. Average annual indicators fell slightly less
by 38%.

For some countries, these figures are comparable to a shock. If we focus on the data between December 2020 and 2019, almost 52% of drilling wells were stopped in the United States, more than 60% in Iraq, 59% in Nigeria, and 49% in all OPEC countries.

For the countries of the Asian Pacific, Europe and Canada, the number of shut-in wells did not exceed 30%. In Oman this figure was just over 20%, and in Norway they continued operating their existing 17 rigs.

If we compare the current data on the number of operating drilling rigs with the data from ten years ago (3227 in December 2010 against 1104 in December 2020), we can see an almost threefold decrease, with the principle decline seen in the last year.

Despite the slight decline in the number of operating drilling rigs in 2019 (only about 200 units), the rapid decline in their number in 2020 was virtually unforeseen, particularly against the general positive trend in 2018 and 2017. Possibly, the impact of global trends, including a slowdown in global economic growth and an increasing imbalance between demand and consumption of fossil fuels by the end of 2019, were multiplied by the practical impact of the Covid-19 pandemic. The negative synergy of these factors inevitably destabilized the long-term sustainable development of the global oil and gas industry. According to the U.S. Energy Information Administration, the consumption of liquid fuels in the world decreased by almost 15% in the second quarter of 2020, and the imbalance between consumption and production reached more than 5%.

It is obvious that such seismic shifts in the organization of hydrocarbon production cannot fail to have an impact on the industry. Particularly painful in the medium term can be the decline in the number of exploration wells, which are crucial for confirming the estimated reserves. Current forecasts of demand for hydrocarbons are often conservative, however, if they turn out to be erroneous and demand is quickly restored, it is not certain that oil or gas production can adequately recover under the current conditions of resource base development.

There is still no prospect of a rapid replacement for fossil fuels on a large scale, given that fossil fuels account for about 80% of the world's final energy consumption, while renewable resources, including traditional biomass, account for the remaining 20%. The situation looks somewhat better in the electricity consumption sector, where the share of renewable sources is significantly higher, but in the heat sector, and especially in transport, it is not possible to replace fossil fuels in significant volumes in the next decade.

Given these circumstances, the hope remains that if demand for hydrocarbons recovers, most of the shutdown drilling rigs can be quickly brought back into operation, and the wells will be reactivated, without significant damage. Investors will again rush to invest in the oil production sector, the transport chains established before the crisis will prove adequate, and additional volumes of oil will be accepted at refineries without problems. In general, business remains as usual, complicated only by the endless series of additional conditions that must be met at the right time and in the right way to allow the industry to successfully recover.