Strong oil prices and tax incentives are expected to drive a swift return to North Sea drilling and deals growth after a “muted” start to the year, according to a new report.
Professional service firm Deloitte’s latest study of upstream activity levels in north-west Europe found that drilling and asset sales on the UK continental shelf (UKCS) levelled out during the first quarter after a strong finish to 2012; nine wells were drilled in the area during the first three months of 2013, against 11 a year earlier and 19 in 2011.
Derek Henderson, its senior partner in Aberdeen, said yesterday that confidence in the North Sea was still high due to UK Government tax incentives.
Predicting a rise in drilling and deals throughout the rest of this year, he said: “Based on the second half of last year, we would certainly expect later spring and summer to demonstrate a return to the kind of momentum we saw then. The oil price is still favourable and there are an increased number of incentives to encourage investment in North Sea exploration and development.”
Deloitte’s report says farm-in agreements were a key part of deals offshore the UK in Q1 2013 after new entrants emerged in the 27th offshore licensing round. Overall deal activity was slightly down on the first quarter of 2012, however, with 19 transactions in the latest period; four fewer than a year earlier.
Two fields received development approval from the UK Government in the most recent quarter, against four a year ago, while three came on stream, compared with none in the first three months of last year.
Deloitte says four out of the five fields either approved or brought on stream in the latest period qualified for small-field tax incentives, while the other was eligible for an ultra-heavy oil field allowance.
Graham Sadler, managing director of Deloitte’s petroleum service group, said the shift in pace during the past quarter was not a sign of waning appetite from UKCS players, adding that the increasing proportion of farm-ins would suggest the need for smaller firms to seek funding partnerships for future drilling.
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