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Saudi cuts drilling activity

The world's largest oil producer has reduced development activity by 20 per cent.

Drilling activity in Saudi Arabia may drop by about 20 per cent this year, as the world's biggest oil exporter slows major oilfield development following a surge of activity in the past three years. But so far there is no evidence of a similar trend in the UAE, where there has been no recent push to develop oilfields, and the state-owned Abu Dhabi National Oil Company (ADNOC) has scheduled several big projects. "It's no surprise that the Saudis had a huge surge in drilling activity that is now falling off," said Raja Kiwan, a Dubai-based analyst with PFC Energy. "The Saudis will be completing a capacity expansion to 12.5 million barrels per day this year." The latest industry data show Saudi rig activity down 5 per cent in January from a year earlier, including a 10 per cent drop in onshore drilling, which accounts for about 80 per cent of all oil and gas drilling in the nation. Overall, 97 rigs were active, down from 102 the previous January, according to the international oilfield services companies that compiled the data. But in the UAE, January drilling activity was up 27 per cent, with the number of active rigs increasing to 33 from 26. Some of the extra rigs may have been contracted as long as six months ago, when oil prices were peaking. In the Middle East as a whole, the January rig count of 274 was only one less than a year earlier, according to the US drilling company Baker Hughes, indicating little change in activity. It fell about 6 per cent from last year's peak of 291 rigs. That compares with a 10 per cent annualised decline in January drilling worldwide, and a 16 per cent slide in global rig activity from September to January. Since rigs are used to drill new wells, and not to pump oil or gas from existing wells, drilling activity is an indication of the immediate effort being put into developing oil and gas reserves for future production. But while a falling rig count in many parts pointed to declining future oil and gas production, this was not necessarily the case in the Middle East, said Mr Kiwan. Especially for Gulf oil producers, drilling activity can fluctuate widely from month to month, according to the progress made on the large field developments typical of the region. Moreover, delays to Gulf energy projects seem mostly to be driven by the desire of national oil companies to save money on falling construction costs. In Saudi Arabia, according to Zawya Dow Jones, industry officials expect the number of rigs active in the kingdom to decline by about 9 per cent this quarter and by more than 20 per cent over the full year. That is because state-owned Saudi Aramco is not renewing rig contracts with high daily rental rates in the hope of paying less to hire rigs as prices fall. For offshore rigs, in particular, rental rates are likely to soften considerably in coming months due to a slowdown in worldwide oil and gas activity, combined with a surge of new rigs coming on to the market. Orders for hundreds of the big offshore rigs were placed with builders over the past few years, when crude prices were rising along with global oil demand. As of January, 877 offshore rigs were being built for delivery between this year and 2012. tcarlisle@thenational.ae

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