North Sea oil and gas exploration is at a “crossroads”, according to a new report on the industry.
Deloitte’s Petroleum Services Group (PSG) found the number of fields starting to produce in the UK hit its highest level for five years, with a 44% increase in 2013 compared with the previous year.
But it also found a 28% drop in exploration and appraisal drilling.
Optimism and pessimism are about equal within the industry, the firm’s energy partner Graham Hollis said. He added: “The rise in field start-ups over the last year and increased interest in licensing rounds are positive indicators for the future of the North Sea.
“However, more than ever companies appear to be at a crossroads in their attitude towards it, with optimism and pessimism seemingly present in equal measure.
“We have recently seen a number of announcements of significant, and in some instances all-time high, levels of investment in the UK continental shelf.
“However, a number of other companies, some of whom have been key players in the UK sector for many years, have publicly announced or are taking steps that seem to indicate that the North Sea is no longer a core focus for investment within their global portfolios.”
The report looks at activity across north-west Europe.
Of the 13 fields brought on-stream last year, 84% were eligible for tax allowances. It points to a “positive industry reaction” to government incentives, Deloitte said.
While exploration and appraisal wells dropped from 65 to 47 last year, activity in the Norwegian continental shelf increased by 41%.
A similar report produced by industry body Oil and Gas UK earlier this month chimed with yesterday’s findings.
The group’s chief executive Malcolm Webb called for urgent government action in the face of an “exploration crisis” after the firm found only 15 wells exploration wells were drilled compared with 47 in 2008. Deloitte said its higher figure of 47 wells in 2013 included re-spuds, re-entries and sidetracks.
Another report by research specialist Wood Mackenzie said investment in the UK North Sea would wane in 2015 despite investment equal to the boom years of the 1970s last year.
Graham Sadler, managing director of Deloitte’s PSG, said: “Despite the high oil price, margins are tight and the drop in drilling during 2013 most likely reflects the increased costs of operating.
“Staff costs remain high and access to equipment such as rigs, which are limited in number, drives prices upwards.
“Nevertheless, we are seeing evidence that government incentives are helping to stimulate field developments – even historic discoveries – with Chevron’s recent announcement that it will start work on the Alder field, which was discovered in the 1970s.”
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