ANS near 2-year highs

OPEC+, Saudis shock markets; carry production cuts unchanged into April

Steve Sutherlin

Petroleum News

Alaska North Slope crude inched up 16 cents March 10 to $67.51 per barrel, ending a two-day slide that began on March 8 following a spectacular week of gains that saw ANS close over $69 on March 5.

Brent and West Texas Intermediate traced a similar pattern, with Brent rising 43 cents to close at $67.90 March 10, while WTI rose 43 cents to $64.44.

ANS leapt $2.84 March 4 to close at $67.05 after the Organization of the Petroleum Exporting Countries and its allied producing countries decided to hold existing production curbs in place, while Saudi Arabia announced it would extend its two-month voluntary 1 million barrel per day production cut into April.

Brent jumped $2.67 to close at $66.75 and WTI jumped $2.55 to $63.83 on the news, reaching the highest levels since April 2019.

On March 5, ANS rose $2.13 to $69.18, Brent rose $2.52 to $69.36, and WTI rose $2.26 to $65.05, before sliding lower on March 8 and March 9.

Prices had accelerated in early trading March 8 after an attack by Iran-backed Yemen Houthis the day before on Saudi oil facilities. The Saudi Energy Ministry confirmed a drone hit on a tank farm at Ras Tanura. But the Saudis said no property loss had occurred and prices fell in mid-morning trading, helped lower by strengthening of the U.S. dollar.

While the drone strike did not interrupt Saudi production, it may have an unintended effect on global oil supply going forward.

The attack could complicate efforts by Biden to revive the 2015 nuclear deal with Iran and lift Trump administration sanctions on Tehran’s crude exports, the Washington Examiner said in a March 8 report.

“The kingdom will take necessary and deterrent measures to protect its national resources,” Foreign Minister Prince Faisal bin Farhan said. “The failed attempts to target the port of Ras Tanura do not only target the security of the economy and Saudi Arabia, they target the global economy and its oil supplies.”

Although the week began with price corrections, ANS, WTI and Brent held closing prices above the level reached March 4 when OPEC+ shocked oil markets by forgoing a previously scheduled relaxation of its production cuts.

At the 14th Meeting of OPEC and non-OPEC Ministers March 4, OPEC+ ministers approved a continuation of March production levels into April; however, Russia was allowed to increase production by 130,000 bpd and Kazakhstan was allowed to increase production by 20,000 bpd, “due to continued seasonal consumption patterns,” OPEC said in a March 4 release.

Since the signing of a Declaration of Cooperation to curtail production at the 10th OPEC and non-OPEC Ministerial Meeting in April 2020, “overall conformity with the original decision was 103 per cent,” OPEC said, adding that since the April meeting, OPEC+ had withheld 2.3 billion barrels of oil by end of January, “accelerating the oil market rebalancing.”

The group will decide the level of May production cuts at its 15th OPEC and non-OPEC Ministerial Meeting, to be held April 1.

Onshore success rate dips

In 2020, the success rate of onshore drilled wildcats hit an all-time-low of 10.6%, declining for a fourth year in a row.

During the first half of the last decade, operators had success rates in wildcat drilling of between 40-60% for onshore and 30-40% for offshore, Rystad said. Both onshore and offshore wells have had a decline in success rates in recent years but for onshore the drop since 2016 - when explorers recorded nearly 60% success with wildcats - has been particularly alarming.

Offshore, the success rate has seen mild fluctuations during this decade and the 2020 score ended at 24.8%, down from 28.6% in 2019 but slightly higher than the 24.1% recorded in 2018, the consultancy said.

“The lack of availability of easily exploitable prospects, combined with dying exploration activity in once rich onshore areas such as the Middle East, have led to the decline in the onshore success ratio,” said Palzor Shenga, vice president at Rystad’s upstream team. “Most of the easily mappable structural prospects with shallow reservoirs have already been thoroughly explored, leaving wildcatters to struggle primarily with technically challenging prospects.”

Rystad said it does not foresee a significant improvement in the onshore success ratio soon and much more activity will be focused on offshore areas, where prospects are associated with higher unrisked resources.

In 2021, Rystad expects 70% of high-impact wildcats to target deepwater and ultra-deepwater plays, 17% targeting offshore shelf areas, and the remaining 13% targeting onshore.

“This indicates that the high-risk deep and ultra-deep plays continue to garner interest despite the decrease in exploration spending,” Rystad said.

In 2020 474 onshore wildcats were drilled, but Rystad projects only 253 in 2021 and 270 in 2022, never exceeding 300 wells per year through 2025. The number of offshore wildcats, however, is forecast at 217 in 2021 and 300 in 2022, up from 180 in 2020.