WoodMac forecasts stable non-OPEC decline rates through 2020

Sept. 27, 2017
Decline rates among countries that aren’t members of the Organization of Petroleum Exporting Countries have held steady at around 5% since 2015, and Wood Mackenzie Ltd. expects them to remain at that level until 2020.

Decline rates among countries that aren’t members of the Organization of Petroleum Exporting Countries have held steady at around 5% since 2015, and Wood Mackenzie Ltd. expects them to remain at that level until 2020.

The research and consulting firm’s report—“Non-OPEC Decline Rates: Lower for Longer”—shows that annual decline rates for conventional fields peaked at 7% during the last decade, or 2.4 million b/d/year. However, in 2014, they reached a historical low of just 3.6%, or 1.2 million b/d. The price collapse caused decline rates in 2015 increase to 5.1%, or 1.9 million b/d, on the back of steep spending cuts, and rates have stayed at around that level since.

Patrick Gibson, WoodMac research director, global oil supply, attributes the stability to operating efficiency and smart spending. Operators have maximized production rates by focusing on the best-performing wells while targeting processes and maintenance programs to increase uptime.

“Slashed [capital spending] now predominantly targets short-cycle opportunities with high-returns potential, while development plans and service-sector cost cuts have bolstered spending efficiency,” Gibson said.

While some shorter-term measures may relax, longer-term factors, such as increased production from “zero-decline” assets and early-life assets, are expected to help keep decline rates steady. WoodMac’s analysis shows early-life assets increasing their proportion of production from 6% in 2010 to 30% by 2020, offsetting higher declines of more mature assets.

“Canada’s oil sands and Brazil’s deepwater presalt play are adding a growing proportion of production, significant enough to offset global decline rates,” he said. “The oil sands alone could reduce decline rates by as much as 0.6% in 2020.”

Technology also is expected to play a role in maintaining stable rates, as evidenced by developments in horizontal drilling, hydraulic fracturing, enhanced oil recovery techniques, and carbon dioxide flooding in the US, Canada, and Russia, the firm said.

Beyond 2020, WoodMac expects decline rates will return to the historical norm of about 6%, and higher oil prices will be needed to incentivize investment in new production to meet a widening supply gap. Even moderate swings in average annual decline rates can influence the market, as the rate of decline for non-OPEC fields is crucial to the global supply picture. A 1% shift in annual global decline rates could potentially add or remove 2 million b/d by 2021.

“With investment so low, the industry is potentially storing up problems for supply that won’t become apparent until after the end of the decade,” Gibson added.