UK drilling likely to stay down, analyst claims

Douglas-Westwood (DW) says the lower oil price is expected to continue to impact oil and gas activity offshore the UK.

Mar 2nd, 2015

Offshore staff

FAVERSHAM, UK – Douglas-Westwood (DW) says the lower oil price is expected to continue to impact oil and gas activity offshore the UK.

Last year only 14 exploratory wells were drilled across the sector out of the anticipated 25, the lowest total since 1970.

However, DW expects UK offshore production to be maintained over the short to mid-term, boosted by sanctioned projects. At the same time, operators are seeking to control costs. BP and Talisman recently announced large job cuts and many high capex developments will face delays, the analyst claims.

Despite the downturn, the28th licensing round announced last November appears to indicate continued interest, with the Department of Energy and Climate Change awarding 134 licenses. Although this total is below the record 27th round in 2012, it demonstrates the ongoing attractions of the region.

Most of the licenses were awarded on the basis of further analysis of seismic data. Award winners committed to just five firm wells and four contingent wells. The lack of drilling activity is a significant concern and encouraging companies back into drilling will require careful restructuring of both the fiscal and regulatory framework, DW says.

Chancellor George Osborne announced plans to revise thefiscal regime and appoint a new regulator. However, more needs to be done, particularly on taxation. Former BP head Lord John Browne recently suggested cutting through the tax complexity and putting it onto a corporation tax basis.

Much depends on the outcome of the general election – DW claims that anything but a win for conservatives may delay much needed reforms and suppress the UK’s offshore oil and gas industry further.

03/02/2015

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