2010 has the makings of a reasonable year for exploration and appraisal drilling in north-west European waters, according to Ian Burdis, VP well management at AGR Petroleum.
He will tell analysts in London this week that a turnaround is under way in the North Sea and that the UK sector, which was especially badly hit in 2009, will benefit.
Burdis told Energy that, based on contracts and probable work in the pipeline, AGR will possibly need three years’ worth of rig capacity this year – more than twice the capacity needed in 2009.
While the company had a year’s worth of work on its books for Norway, Burdis said it was barely a third of a year’s worth in the UK.
“Throughout last year … even as far back as 2008 … we saw companies deferring (drilling) programmes,” said Burdis.
He said exploration and production companies could be divided into two camps – those that had money but kept their head down in 2008-09 during the economic storm, and those who wanted to explore/develop assets but had little or nothing in the bank and were having to hawk around for funds and/or farm-down promising acreage. Today, he said, there were more companies with the wherewithal to resume activities, but that some, such as Elixier and Stratic, appeared to be struggling.
“I think it’s encouraging that more of these people are wanting to talk with us, whereas last year, it wasn’t the case. Generally, things are looking a lot more optimistic than even three or four months ago.”
In north-west Europe, and aside from Norway, AGR did only four UKCS projects – two wells and two sidetracks. That compares with 32 in 2008.
Burdis said AGR was already ahead of its forecast in terms of revenue and order book, although this does include the Falklands campaign, which took a hit late-March with the failure of the first probe by Desire to find clearly commercial oil.
On petroleum minnows trying to raise money to fund North Sea ambitions, he said: “One or two people that I’ve been speaking with have been on the raising-money trail.
“There are those who have a Central or Southern North Sea asset which is known, understood and is within tie-back distance of an existing platform, yet they can’t raise any money for it because it is known quantity and there is no upside to it.
“And yet you see the guys who have interests in the Falkland Islands … £200million was raised between Desire, Rockhopper and Borders & Southern … for what is essentially blue-sky exploration, albeit it one that potentially offers a massive upside.”
Burdis warned that companies seeking money faced a worse trek around doors than pre-credit crunch.
“They used to go around to a principal lender who would then syndicate on their behalf. But apparently that facility no longer exists. Today, you have to talk to this bank or that investment trust, or this venture-capital provider … you’re having to talk to everyone individually.
“The companies are saying that, rather than the money coming in from one lender, syndicated, it now comes as £10million from here, £5million from there, and so on.
“The banking community is riddled with mistrust and doubt. Yet the irony is that the money is there.”
Burdis added that the UK fiscal system remained an obstacle.
“The key component here is that you can’t claim your project financing as part of your capex and get tax relief on it.
“It’s borne as an internal cost, whereas elsewhere, including in the US, you can offset that against your capital costs for the project. It’s a wrinkle that’s actually keeping money out of the UK.
“There are projects that could have gone ahead had the tax regime been a little more lenient.”