Signs good for UK revival, report says

Wood Mackenzie expects last year’s recovery in the UK upstream oil and gas sector to continue through 2011.

Offshore staff

EDINBURGH, UK -- Wood Mackenzie expects last year’s recovery in the UK upstream oil and gas sector to continue through 2011.

Returning confidence, the analysts claim, will lead to capital investment rising from £4.4 billion ($7 billion) in 2010 to £7.7 billion ($12.3 billion) in 2011. This will leading to a temporary halt in the long-term decline of the UK’s oil and gas production.

Additionally, the likelihood of a stable, high oil price should lift exploration and appraisal drilling activity on the UK continental shelf.

Lindsay Wexelstein, lead analysts for Wood Mackenzie’s UK upstream research team, said: “Looking at the last year, industry confidence was reflected by the success of the 26th Licensing Round, an increase in deal activity and a rise in the number of projects put forward for approval.

“The returning confidence was also evident in exploration, where drilling was up by 28% with 37 wells spudded, but it was still a long way short of the 56 wells spudded in 2008.

“For 2011, we expect exploration and appraisal drilling to increase as companies’ more positive economic outlooks become reflected in their drilling schedules. The UK remains an attractive province and material discoveries are still being made.”

Despite the optimism, the volume of new UK reserves discovered dipped by 67 MMboe last year to 233 MMboe, the analysts point out. Appraisal drilling also dropped by a third from the 2009 total, with only 33 wells drilled, as companies focused more on exploration.

“Over $7.3 billion of assets were traded in the most active UK deal market since 2006,” Wexelstein added, “with the takeover of Dana Petroleum by the Korea National Oil Corp. (KNOC), accounting for almost half of the total value exchanged. Our analysis shows that growth assets continued to attract buyers throughout the year whereas the slow down in the mature asset market continued.

“We do not expect a significant shift in the asset market in 2011, meaning deal activity levels are likely to remain at similar volumes to 2010."


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