How will NOCAR rig-driven production respond to tighter balances and higher prices in the wake of the Ukraine war and the loss of some Russian oil supply?
Energy security is at the forefront of international politics as the West looks to substitute ~3 MMbbl/d of Russian supply in its balances. Enverus expects U.S. oil supply to surge this year by ~1 MMbbl/d exit-to-exit and by 800 Mbbl/d in 2023, with infrastructure limitations, labor constraints, and material and service cost inflation posing significant headwinds to additional growth. International operators could look to NOCAR (non-OPEC, Canada, U.S. or Russia) countries to boost the current output of 25.8 MMbbl/d. Given historical data suggesting an average response lag of six months for onshore rigs and 12 months for offshore rigs across the stack (Figure 1), we expect the supply response to recent high prices to be limited and lagged by 18-24 months.
Enverus developed a regression model for each NOCAR wedge capturing rig deployment in response to price signals between 2016 and 2019 – a period of relatively stable macro conditions and wide price spread. A rig response to price signal lag of six months was assigned for onshore rigs and 12 months for offshore. For countries displaying a price-response correlation above 50%, we ascribed incremental growth according to production additions per rig from our base case forecast by country.
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