UK offshore drilling decline countered by development surge

Jan. 24, 2012
Exploration drilling activity offshore northwest Europe last year dropped by 12%, according to Deloitte’s Petroleum Services Group.

Offshore staff

ABERDEEN, UK – Exploration drilling activity offshore northwest Europe last year dropped by 12%, according to Deloitte’s Petroleum Services Group.

During 2011, the analysts counted 122 exploration and appraisal wells across the region, 17 fewer than in 2010.

The main source of the decline was offshore the UK, where only 49 wells were spud last year compared with 74 the previous year. This is the lowest level since 2003, Deloitte say.

“The low activity on the UKCS is not what we would normally expect in a year when the average monthly Brent oil price has remained well above $100/bbl,” said Graham Sadler, managing director of Deloitte’s Petroleum Services Group. Multiple factors are to blame, he suggested.

“While theSupplementary Charge Tax imposed early in 2011, and further alterations to the fiscal regime, may have affected business confidence, given the lead time required for planning and drilling of exploration and appraisal wells, the full effect of this tax change may not be evident until the end of 2012 and beyond.

“It is more likely that a delayed reaction to the 2008 recession, current economic and market factors, delays affecting rig availability and the maturity of the UKCS are the key contributing factors.”

Possibly also, the impact of the global financial crisis is more evident on the UKCS due to the range of companies holding acreage there. Deloitte points out that 33% of the wells drilled off the UK last year were operated by small independents and 39% by mid-size independents that may have had difficulties acquiring capital for drilling.

However, Norway, the Netherlands, Denmark, and Greenland experienced activity levels above or on a par with well numbers in 2010. The steepest rise was offshore Norway, up by 12%.

Deloitte’s report also found that while new field start-ups continued to decrease offshore the UK and Norway, there was an increase in new field development approvals. Also, new companies continue to enter the UK, Norwegian and Irish sectors following these countries’ latest licensing rounds.

The upsurge in new developments, Sadler claimed, “is a sign of companies looking to get the best return on their investment by monetizing their assets during a period of sustained high oil price.

“Moving into 2012, it is unclear whether levels of exploration and appraisal drilling will return to pre-2011 levels as the current factors driving decision making may continue to have an influence, along with the limited number of outstanding well commitments still to be met from the UK’s 25th and 26th licensing rounds, which may see levels continue to remain low in the next few years.

“We would, however, expect to see additional investment coming onstream in the months ahead and a number of field developments pushed forward.”