No upturn in sight for UK offshore drilling

Drilling levels will remain modest offshore the UK for at least another year, predicts Deloitte’s Petroleum Services Group.

Offshore staff

ABERDEEN, UK – Drilling levels will remain modest offshore the UK for at least another year, predicts Deloitte’s Petroleum Services Group

Exploration and appraisal in the sector has already been hit this year by poor weather and high costs.

During 1Q, 12 E&A wells were drilled on the UK continental shelf, Deloitte’s found, one less than during the corresponding period in 2013.

License transactions were also down to 10 in the period, compared with 19 in 1Q 2013.

Graham Sadler, managing director of Deloitte’s PSG, said: “It is very likely that what we’re seeing is a result of the continuing higher operating costs and the ongoing challenges of a mature region. These could be having a knock-on effect on deal flow, since sellers might be seeking a higher price than buyers may be willing to pay…

“Operators are definitely showing more caution, indicating, again, that incentives from government may be the only way to make the economics more viable.”

While the recent recommendations ofSir Ian Wood’s business review could benefit the UK sector, the tax changes in Britain’s recent budget could also impose additional costs for North Sea operators, the report points out.

Changes in howbareboat chartering is taxed apply to companies leasing rigs and offshore accommodation vessels. The measure will increase costs and could lift UK offshore rig day rates, which had shown signs of easing.

Derek Henderson, office senior partner for Deloitte in Aberdeen, said: “The sector is in for a long haul back to anything like the performance of the peak years and, while there are sound measures being brought in to encourage activity, we’ll need to see a concerted effort from government and industry to restore confidence in the sector in the short term and to ensure maximum recovery from the UKCS in the long term.”

05/02/2014

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