Deloitte reports UK needs incentives to revive exploration

Thirteen UK offshore fields entered production last year, according to Deloitte’s Petroleum Services Group’s latest survey of the sector.

Jan 29th, 2014

Offshore staff

ABERDEEN, UK – Thirteen UK offshore fields entered production last year, according to Deloitte’s Petroleum Services Group’s latest survey of the sector.

This was four more than in 2012, and the highest number of UK field startups since the 16 recorded in 2008.

Of last year’s new intake, 13 fields were eligible for tax allowances, suggesting a positive industry reaction to the government recent development incentives, Deloitte said.

However, only 47 exploration and appraisal wells were drilled on the UK continental shelf (UKCS) last year, down from 65 in 2012. Over the same period, E&A drilling activity offshore Norway increased 41%.

Graham Sadler, managing director of Deloitte’s PSG, said more exploration incentives are needed on the UKCS. “TheNorth Sea industry is complex and companies operating in there have to consider many factors. Despite the high oil price, margins are tight and the drop in drilling during 2013 most likely reflects the increased costs of operating. Staff costs remain high and access to equipment such as rigs, which are limited in number, drives prices upwards.”

Although theUK’s 27th licensing round attracted record levels of applications that led to 219 awards, future prospects for exploration remain uncertain.

Graham Hollis, energy partner at Deloitte, said: “We have recently seen a number of announcements of significant – and in some instances all-time high – levels of investment in the UKCS. However, a number of other companies, some of whom have been key players in the UK sector for many years, have publicly announced or are taking steps that seem to indicate that the North Sea is no longer a core focus for investment within their global portfolios.

“Any longer-term decline in exploration and appraisal drilling will be of concern and there are measures that seriously need to be considered by industry and government to reinvigorate drilling activity and ensure the longevity of the UKCS.”

01/29/2014

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