Capital investment in the UK North Sea hit an all-time high of £7.5billion last year, according to a report released by oil industry analysts today.
In its annual review, Wood Mackenzie said sustained high oil prices had continued to give companies and investors confidence to progress projects, despite the backdrop of higher tax rates on operators.
It also said it expected investment to remain high – until at least 2014.
However, Mike Tholen, economics director at industry body Oil & Gas UK said: “While investment in 2011 was high and the outlook for 2012 onwards is positive, last year it did not reach the £8billion conservatively forecast by Oil & Gas UK just before the Budget.
“For the sake of the UK’s energy security, employment, tax revenues and balance of trade, we must therefore ensure that through engagement with the Treasury investment is attracted to the projects made uncommercial by the tax increase and the fields whose sale to new owners is currently being held up.”
Despite the bumper spending, Wood Mackenzie’s report said 2011 saw just five new fields start production, due to a slowdown in developments progressing during the economic crisis.
However, it said with large incremental projects west of Shetland and 420million barrels of oil equivalent (boe) of new field reserves sanctioned for development in 2011, the 2012 outlook was more positive.
High investment up to 2014 would reflect these new fields being brought into development and incremental projects starting, including more than £2billion expected investment in 2012 west of Shetland.
The report said the success of the recent 26th licensing round, with 46 licences offered, confirmed an increasing appetite for UK exploration acreage and said that this would likely prove similar in the 27th round.
However, it suggested a slump in exploration and appraisal drilling activity would only partially reverse in 2012.
North American firms had shifted exploration focus from the UK to either development or elsewhere in the world and other firms, which had been driving drilling, were now focused on development, said Lindsay Wexelstein, lead analyst for Wood Mackenzie’s UK upstream research team.
“Companies have turned their attention away from exploration and appraisal activity to developing fields for the time being as the stable, high oil price environment has offered them the opportunity to focus on progressing development projects to turn reserves into revenue,” she said.
“Given the lead times associated with exploration and appraisal activity, the supplementary charge increase in March had little impact on the overall drop in activity – only 47 wells spudded in 2011.
“Although we expect exploration and appraisal drilling to rise slightly in 2012, we think the focus in the near term for many companies is going to remain on development projects.”
The report also said 2011 saw the most active deal market since 2005 with £2.5billion of assets traded, dominated by Apache’s acquisition of assets, including Beryl from ExxonMobil, and Perenco’s acquisition of Wytch Farm from BP.
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