The number of operating rigs in the Middle East has increased by nearly 11 per cent over the past two years, as the region’s major energy producers have raised output to offset production falls from disrupted countries such as Iran, Libya and Syria.

The growth in rig activity has seen the Middle East overtake both Latin America and Canada to become the second-biggest rig market in the world after the US.

The latest data on rig activity from US oil field services company Baker Hughes, which publishes monthly rig count figures for the upstream oil industry, shows that 448 oil rigs were operating in the Middle East and North Africa (Mena) region at the end of June this year, up from 404 in June 2012.

Market growth

The regional increase in rig activity comes despite significant reductions in markets such as Syria, which has seen the number of operating rigs drop from 27 to zero over the past two years due to the civil war, and Egypt, which has seen a 23 per cent drop in rigs over the same period. In addition, smaller producers such as Bahrain, Yemen and Dubai have seen no change over the past two years. Baker Hughes does not publish Iran’s rig numbers.

 

Despite the increase in focus of the region’s national energy companies on offshore exploration and production, nearly all of the growth in rig numbers has come from onshore activity, as a result of significant expansions in the region’s two biggest markets – Saudi Arabia and Iraq. Together, the two countries account for 37 of the 44 additional rigs seen in the region over the past two years.

Onshore activity

Iraq has no offshore operations, while Saudi Arabia is focusing on gas exploration from non-conventional forms located on land.

The split between oil and gas rigs has remained constant in the region, with the ratio of 81 per cent oil rigs to 19 per cent gas rigs in June 2012 remaining largely unchanged at 80:20 in June 2014.

That the figures have remained steady is unexpected as many of the region’s major producers have introduced significant changes in focus in recent years.

[Aramco’s] focus is well and truly on gas now and much of the rig activity in 2014 will be in that sector

Riyadh-based analyst

Saudi Arabia has been at the forefront of this growth in production, with a near 24 per cent increase in oil rigs in the past two years. Its onshore rigs have climbed from 64 to 81 since June 2012, with offshore rigs rising from 20 to 23.

The uplift underlines how much harder state oil company Saudi Aramco is having to work to maintain its 12.5 million barrels a day (b/d) of oil production capacity from its maturing fields, even though its current output is only between 9 and 10 million b/d. 

The primary focus for Aramco is increasing gas output, and following the recent announcements regarding the company’s intention to significantly increase its unconventional gas operations, the kingdom’s rig count could see further rises over the next two years.

“[Aramco’s] focus is well and truly on gas now and much of the rig activity in 2014 will be in that sector,” says one Riyadh-based analyst. “In exploration terms, oil is a distant second in the kingdom at the moment.”

Diversifying focus

In addition, the company is also increasing exploration activity in undeveloped regions such as the Red Sea and the Empty Quarter. Some industry experts forecast that the state oil company could have more than 200 rigs operating in the kingdom by 2016.

But while the majority of the kingdom’s focus is on developing new gas fields, much of the rest of the region’s focus is on oil production. Iraq’s rigs have increased to a level where it is almost rivalling Saudi Arabia as the region’s largest rig operator. The country’s rig number grew to 96 in June 2014, up from 79 in June 2012.

Starved of investment throughout the 1980s and 1990s, Iraq’s oil fields are facing an intensive increase in their rig networks as the international oil companies (IOCs) operating the country’s fields seek to ramp up output to commercially viable levels.

Rig count for major producers in Middle East and North Africa 
  2012 2013 2014 Year on Year change (%) Two year change (%)
  Jun Jun Jun
Saudi Arabia
Land 64 64 81 26.6% 26.6%
Offshore 20 18 23 27.8% 15.0%
Iraq
Land 79 89 96 7.9% 21.5%
Egypt
Land 59 52 45 -13.5% -23.7%
Offshore 13 11 10 -9.1% -23.1%
Oman
Land 50 48 59 22.9% 18.0%
Offshore 1 1 0 -100.0% -100.0%
Algeria
Land 41 48 42 -12.5% 2.4%
Kuwait
Land 35 34 35 2.9% 0.0%
UAE – Abu Dhabi
Land 14 19 24 26.3% 71.4%
Offshore 10 7 9 28.6% -10.0%
Qatar
Land 3 4 4 0.0% 33.3%
Offshore 4 4 7 75.0% 75.0%
Libya
Land 10 14 10 -28.6% 0.0%
Offshore 0 1 1 0.0% na
UAE – Dubai
Offshore 1 0 2 na 100.0%
Total 404 414 448 8.2% 10.9%
YOY=Year on year; na=Not applicable. Source: Baker Hughes

Iraq activity

The investment has seen Iraq’s oil production jump to 3.5 million b/d by March and has Baghdad predicting that output could top 4 million b/d by the end of 2014 and 4.5 million b/d by the end of 2015.

Of the other major producers, Qatar has seen the largest percentage increase, while Iraq has recorded the highest growth in numbers.

Qatar’s rig activity has risen by almost 43 per cent over the past two years, although the country operates far fewer smaller rigs than its neighbours. Rig numbers increased to 11 in June 2014, up from 7 in June 2012. However, the increase reflects Doha’s desire to ramp up activity in the oil sector after years of continued focus on gas.

Abu Dhabi investment

Abu Dhabi has seen a 37.5 per cent growth in operating rigs count, jumping from 14 to 24 on land and decreasing from 10 to nine offshore to give a total of 33.

The increases reflect the vast investment the UAE capital has made since 2009 in its hydrocarbons sector, with tens of billions of dollars spent on both upstream oil and gas projects.

Abu Dhabi has seen a 37.5 per cent growth in operating rigs count

Elsewhere across the GCC, Kuwait’s figure of 35 is the same as 2012, supporting the country’s renewed commitment to the development of its downstream refining sector.

Meanwhile, Muscat’s vigorous use of enhanced oil recovery techniques to increase its oil production has resulted in Oman upping its rig count to 59 operating rigs, up from 51.

Historical yearly average Middle East rig count
1975 172
1980 245
1985 200
1990 137
1995 128
2000 156
2005 248
2010 265
2014 408*
*=To date. Source: Baker Hughes

In North Africa, none of the major producers have expanded rig operations, with Egypt suffering significant reductions due to the political instability in the country.

Egypt decline

Egypt is now utilising 55 rigs, a drop of almost 24 per cent from the June 2012 figure of 72. Most of the decline has come onshore, dropping from 59 rigs in 2012 to 45 today.

Cairo is prioritising growth in gas production in order to address a growing energy crisis in the country. But it must address many deep-seated problems if it is to reverse its waning rig activity.

The North African state’s upstream sector is unpopular with IOCs, who see the terms of Cairo’s operating agreements as relatively unattractive when compared with other markets. The political instability of the past three years has also been a significant factor.

Similar unrest in Libya has meant that the country’s rig count has stayed the same over the past two years, while Algeria has witnessed a rise of one rig to 42.

Algiers and Cairo are both developing plans to kick-start their respective hydrocarbons sectors, with new licensing rounds for exploration and production (E&P) permits. Egypt has several applications under evaluation while Algeria is planning to invite bids for concessions in the third quarter of 2014.

However, there seems to be no desire from either country to make the terms more attractive, so the strategy is unlikely to provide the stimulus both require.

Growth expected

With so much uncertainty in the region it has proved difficult to accurately predict the future rig count numbers across the world’s largest oil producing region. However, there are several trends across the Middle East and North Africa, which suggest that increased activity can be expected.

Middle East oil and gas rig split
Date Oil Gas Miscellananeous Total
Jun-12 322 76 2 400
Jul-12 315 84 2 401
Aug-12 304 83 1 388
Sep-12 302 78 1 381
Oct-12 300 76 1 377
Nov-12 317 76 1 394
Dec-12 294 62 7 363
Jan-13 303 70 6 379
Feb-13 279 68 3 350
Mar-13 265 66 5 336
Apr-13 264 80 10 354
May-13 279 80 3 362
Jun-13 299 87 3 389
Jul-13 299 77 3 379
Aug-13 289 70 3 362
Sep-13 297 79 3 379
Oct-13 303 77 3 383
Nov-13 307 78 3 388
Dec-13 316 86 3 405
Jan-14 307 93 3 403
Feb-14 306 88 2 396
Mar-14 319 80 2 401
Apr-14 323 82 2 407
May-14 328 84 2 414
Jun-14 339 84 2 425
*=Does not include Libya and Algeria. Source: Baker Hughes

Saudi Arabia has several promising exploration areas for both oil and gas, which are located onshore and offshore. The Red Sea offers a new frontier and, alongside Aramco’s foray into unconventional gas, is also guaranteed to increase rig numbers.

Iraq’s continued growth in oil production will require increased provision of more infrastructure, especially rigs, and Baghdad is sure to push its rig numbers to more than 100 by the end of 2014.

Across the region as a whole, the UK’s Barclays Bank has estimated that E&P spending will rise by 14 per cent in 2014 and the knock-on effect will be increased rig activity.