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Deloitte: Drilling Activity up 64% on UK Continental Shelf

July 17, 2012

Offshore drilling activity on the UK Continental Shelf (UKCS) rose 64% during the second quarter of 2012 compared to the same period last year, according to the latest industry figures released by Deloitte.
The report, which documents drilling and licensing across North West Europe between April 1 and June 30, shows 18 exploration and appraisal wells were drilled on the UKCS during the period. This also represents a 64% increase on the first quarter of 2012.
With deal activity – where oil and gas fields are bought and/or sold - in the UK also rising 47% this quarter, compared to Q2 last year, and an increase in field development approvals and start-ups, the outlook for the UK oil and gas industry is positive.
“We traditionally experience a rise in activity during the summer months, however this year’s spur of activity reflects a higher year-on-year increase.” said Graham Sadler, managing director of Deloitte’s Petroleum Services Group. 
“We have some way to go before we are back to the levels seen in 2009 and 2010, however the positive announcements in the Government’s March Budget with regards to the extension and change in field tax allowances should encourage further exploration, appraisal and development activity. Furthermore, the announcements made to provide more certainty on the decommissioning tax relief, if implemented, should allow companies to recover cash flow previously tied up in financial guarantees for further investment across the UKCS.
“Interestingly, we are also seeing a reversal in terms of drilling activity levels in the UK compared to Norway which is down 33% in the last quarter. This may suggest the recent tax changes introduced by the UK Government are encouraging organisations to look at the North Sea in a more positive light.
“While we will have to wait until next year to see the full impact, the highly competitive 27th Licensing Round is likely to trigger more exploration and appraisal commitment from companies who are putting down plans for the next two to three years. With an improved fiscal environment and steadily high commodity prices, it is reasonable to assume that we will see an expansion on the exploration campaigns started during the last quarter.”
The report indicates a mix of companies in the North Sea making use of the Government’s March Budget announcement, with a number of deals focused on new and existing discoveries, as well as deals involving fields under development or fields that are already producing.
The number of field start-ups occurring in the first half of 2012 also shows positive signs for the industry. So far in 2012, across the North Sea, eight new fields have come onstream. This is higher than the total number of field start-ups seen during 2011 and more than double those seen in 2009 and 2010.
Added to this, the number of fields being approved for development by the UK and Norwegian governments has been increasing over the past three years. In 2009 only eight fields were awarded development approval and last year a total of 18 projects were granted approval.
“With the sustained high oil-price and the evolution of new technologies, companies are now able to develop what, in the past would have been considered as sub-commercial developments and already in the first six months of 2012 we have seen 12 fields being approved” added Mr Sadler.
Deal activity meanwhile has picked up in the UK with 25 deals taking place in the second quarter of 2012. This is two more than in the previous quarter and eight more than during the same period last year (47% increase).
“While overall levels of deal activity across North West Europe remain similar to those seen during the previous quarter, the UK has not only seen a rise but we have experienced a reversal in the type of deals being made,” said Graham Hollis, energy partner at Deloitte in Aberdeen.
“A year ago deals were strongly dominated by farm-in activity (where companies offer a percentage in a field to potential partners or investors) as companies looked to spread risk and financial commitments. Across Northwest Europe, only nine farm-ins have occurred during the second quarter of 2012, a 58% drop compared to the same period last year.
“Instead, we have seen a 58% rise in the number of asset transactions (fields being bought and/or sold) across Northwest Europe, as companies feel the benefit of increased liquidity and are increasingly willing to take risks and spend money on full asset acquisitions.”
The average Brent oil price for the second quarter was USD 108.3 per barrel, compared to USD 118.43 per barrel in the first three months of the year. The oil price continues to be strong, hovering around the USD 100 per barrel mark, however, for the first time in over a year, it has dropped below this figure.

 



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