Optimistic Forecast for North Sea Drilling

North Sea drilling activity remains steady, with a positive forecast for the next two quarters, according to a new report into offshore activity from Deloitte, the business advisory firm.

The report, compiled by Deloitte’s Petroleum Services Group (PSG) found that although the number of new wells drilled on the UK Continental Shelf (UKCS) has fallen slightly in comparison to the same period last year, the level of exploratory activity remains healthy.

A total of 16 exploration and appraisal wells were drilled in the UK during the second quarter of 2013 – seven more than during Q1 but two fewer than the same period last year. Despite the slight fall on 2012’s figures, Q2 2013 has still produced two more new wells than the quarterly average since the end of 2011 – a year which saw the lowest activity since 2003. Across North West Europe as a whole, 35 new exploration and appraisal wells were drilled – 10 more than in Q1 but only matching the second quarter of 2012.

Graham Sadler, managing director of Deloitte’s PSG, said the latest figures are in line with what would be expected from a mature region such as the UKCS.

He said: “These figures indicate the UKCS remains a strong and productive sector, which bodes well for the final two quarters of the year. I fully expect to see further positive figures in quarters three and four as the region recovers from a prolonged and harsh winter, which was followed by an unusually late spring.”

One of the notable features of Q2’s report is the significant increase in farm-in style agreements, where one company takes a stake in another company’s field - often to assist with drilling or development costs. Farm-ins accounted for around 70% of the total North West Europe deal landscape during Q2. A total of 30 deals were completed in the region, slightly down on the 35 that were completed during the same period last year.

Sadler said: “The number of smaller companies operating in the North Sea, as many major firms move to less mature areas, in part explains the significant increase in the number of farm-in deals. Farm-ins allow smaller companies to benefit from pooling resources and equipment such as drilling rigs, enabling them to access existing North Sea reserves.”

Development activity is also holding strong, with six fields being granted development approval and four actually coming onstream across UK and Norwegian waters. Although the number of fields coming onstream in the UK (three) is down on the same period in 2012 (five), innovative technologies mean that previously ‘sub-commercial’ developments – those which might not have been considered economically viable – are beginning to provide real prospects, further incentivising the exploration and development of the area.

Although the North Sea has seen a very slight decrease in the number of new exploration wells being drilled this quarter the future remains bright across the region.

Graeme Sheils, energy partner at Deloitte in Aberdeen, said: “This quarter’s stable drilling figures should not detract from the fact that the UKCS is experiencing high activity levels.  The market is currently buoyed by a number of factors including a stable oil price, increasing investment and Government incentives.  With a more positive domestic outlook also beginning to emerge across the rest of the UK, there is a lot of confidence in the outlook for the North Sea sector.  

“Frontier areas such as offshore west of Ireland are also attracting attention, where the industry awaits the results of the Dunquin well. The highly anticipated results of this exploratory well could spur further activity, with a number of companies already having farmed-in to offshore acreage this year.  While a nice problem to have, success will bring further pressure in finding and securing the skilled resources needed to exploit the available opportunities, which is an ongoing challenge in the North East.”