UK offshore focus shifts to development

Jan. 10, 2012
High oil prices continue to drive offshore projects in the UK sector, according to analysts Wood Mackenzie latest review.

Offshore staff

EDINBURGH, UK – High oil prices continue to drive offshore projects in the UK sector, according to analysts Wood Mackenzie latest review.

Last year the UK’s capital investment reached an all-time high of £7.5 billion ($12.4 billion), Wood Mackenzie claims.

It expects investment to stay consistently high at least through 2014, as new fields are brought into development and incremental projects are advanced on existing fields. These include more than £2 billion ($3 billion) of anticipated investment in 2012 in the west of Shetlands area.

Last year’s upwards curve continued, despite the increase in Supplementary Charge tax introduced by the government.

According to Lindsay Wexelstein, Lead Analyst for the UK upstream research team: “The success of the 26th Licensing Round, which started in 2010, was cemented by the second phase of awards at the end of 2011.

“With an additional 46 licenses offered, the round will surpass recent licensing rounds confirming the increasing appetite for UK exploration acreage.”

Exploration and Appraisal (E&A) drilling dropped last year, however, compared to previous years. This was largely due to most of the North American players either progressing development projects in the UK or pursuing opportunities elsewhere.

Other companies which had been actively drilling are also now veering more toward to development of their UK assets.

This, Wexelstein explains, is due to the stable, high oil price environment which “has offered them the opportunity to focus on progressing development projects to turn reserves into revenue.

“Given the lead times associated with E&A activity, the Supplementary Charge increase in March had little impact on the overall drop in activity – only 47 wells spudded in 2011. Although we expect E&A drilling to rise slightly in 2012 we think the focus in the near term for many companies is going to remain on development projects.”

Last year, the review added, $4 billion of UK offshore assets were traded, representing the most active deal market since 2005. The two stand-out mature asset deals, accounting for more than 40% of value traded, were Apache’s acquisition of the Beryl field in the North Sea and other assets from ExxonMobil, and Perenco’s acquisition of Wytch Farm on the English south coast from BP.