UK drilling slump offset by 'feel-good' factor offshore Norway

Exploration drilling on the UK continental shelf picked up during 3Q 2011, according to analysts Deloitte.

Offshore staff

ABERDEEN, UK – Exploration drilling on the UK continental shelf picked up during 3Q 2011, according to analysts Deloitte.

The company counted a total of 16 exploration and appraisal well spuds in this period, up 45% compared with the second quarter figure. However, the overall number was still nine fewer than during the same period last year.

And the total number of UK E&A well spuds so far this year is just 37, compared with 63 by this point in 2010. That level of activity is the lowest since 2003.

The decline is not what might be expected during a period of oil prices consistently over $100/bbl, Deloitte suggest. Likely factors are the relative geological maturity of the UK sector compared to other more buoyant regions in northwest Europe, and the alterations to the UK’s fiscal regime this March.

These and other changes introduced over the last decade have affected investor confidence and led to the UK being viewed as a relatively unstable oil and gas province, the analysts claim.

Also, some smaller, UK-focused companies may have experienced difficulties securing finance to fund E&A drilling in recent months, not helped by fears concerning the euro zone crisis and the possibility of a return to a global recession.

These factors have led to some of companies in this bracket losing significant corporate value, and hindering them from financing drilling on their UK acreage.

Various jackups and semisubmersibles were stacked in UK waters during 3Q 2011, so rig availability is hardly an issue, the analysts say – except perhaps west of Shetland, where a shortage of heavy-duty rigs and drillships may have constrained exploration.

Offshore Norway, Deloitte counted 16 E&A well spuds during the third quarter – the same as in the UK, but this number is double the total spudded off Norway during the corresponding period last year, and on a par with the record number drilled during 3Q 2009.

Eleven of the 16 wells were in the North Sea, four in the Norwegian Sea and one in the Barents Sea.

Deloitte says the outlook for exploration and appraisal drilling on the NCS remains positive. So far this year, 41 E&A wells have spudded throughout the sector, just five fewer than the total number drilled during the whole of 2010. If current trends continue until year-end, 2011 may approach record levels.

Deloitte puts the improvement in recent years down to the success of Norway’s Awards in Pre-defined Areas (APA) licensing rounds, which have stimulated drilling in mature areas, and tax incentives offered by the government.

One of these is a tax rebate system that allows companies to claim 78% of their exploration costs in a dry hole. Also, the relative geological immaturity of the NCS may have contributed to the high number of exploration wells compared to appraisal wells during 3Q 2011.

Deloitte expects drilling to remain buoyant offshore Norway into 2012 because of the oil price, Norway’s fiscally stable regime, and the recent giant discoveries in the North Sea and lesser finds in the Barents Sea.

One well was completed in the Dutch North Sea during 3Q 2011, which led to GDF Suez discovering gas at the Darcy prospect with the K/12-18 S4 well.

Finally, four E&A wells have been drilled so far this year offshore Denmark, the highest level of activity seen since 2008.


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