Exploration and appraisal drilling in the UK North Sea has dropped to its lowest level since 2003, according to a report released yesterday.
Global business advisory firm Deloitte said the continuing crisis in the eurozone, changes to the UK’s fiscal regime and the maturity of the North Sea could be affecting activity in region.
It also pointed to possible difficulties by smaller UK-focused explorers on raising finance to fund exploration. Deloitte’s north-west Europe review joins a growing chorus of warnings over a slump in UK North Sea drilling activity, seen as vital to maintaining the pipeline of fields coming online and supporting oil and gas production and jobs in future.
Deloitte said that, despite a 45% rise in exploration and appraisal drilling in the third quarter, compared with the second, drilling was still down 36% year-on-year.
So far this year, it said the number of wells drilled was 37, down 41% on the same period last year and the lowest number in eight years.
The firm said the trend was not what would be expected during a period when the average oil price was more than $100 a barrel.
Graham Sadler, its petroleum service group managing director, said: “Elsewhere in north-west Europe this buoyant oil price has driven high levels of drilling activity. It could be that factors including the relative geological maturity of the UK sector, compared to some adjacent regions, and the alterations made to the UK fiscal regime earlier this year have impacted business confidence.”
He added that a combination of the tax rises announced in the Budget and general market instability around the eurozone crisis, had led to some smaller, UK-focused, companies losing significant corporate value, which might have inhibited their ability to finance drilling programmes planned for 2011.
According to industry body Oil and Gas UK’s recent 2011 economic report, there were 30% more smaller operators in the UKCS in 2010 than in the previous year.
Mr Sadler added that, with some jackup and semisubmersible rigs sitting unused in UK waters during the third quarter, it was unlikely that a lack of rig availability was contributing to the low activity, however, he added: “The lack of availability of more heavy-duty rigs, including drillships required when drilling in the extreme conditions west of Shetland, may be impeding exploration in these areas.”
Deloitte also pointed to an increase in corporate deals, with four acquisitions announced during the third quarter against two in the second, one of which did not go ahead. Derek Henderson, the firms’s energy partner in Aberdeen, said: “The consistently high oil price may have encouraged companies to review their portfolios with a view to merger and acquisition activity. It may also have allowed organisations to undertake larger, more risky deals and, in these conditions, companies may be more interested in buying production assets as opposed to exploration opportunities.”
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