North Sea picks up the pace of performance

Paul Boughton

Confidence is returning to investment decisions being made in the UK Continental Shelf (UKCS), according to latest figures from business advisory firm Deloitte.

The latest North West Europe Review, produced by the firm’s Petroleum Services Group, shows drilling activity in the UK during the first three quarters of 2012 has exceeded the same period last year and is just 6 per cent off the total number of wells drilled during 2011. With three months of the year still to go, drilling levels are on target to overtake 2011’s total.
In addition, the number of UK deals - where oil and gas fields are bought and/or sold -reported this year is already up 5 per cent on the total number which took place last year. The number of fields granted development approval in the UK this year has also surpassed the total number of approvals in 2011.[Page Break]

While Q3 saw a decrease in the number of exploration and appraisal wells drilled, when compared to Q2 this year, Graham Sadler, managing director of Deloitte’s Petroleum Services Group, said that when many factors are considered, the figures illustrate greater stability returning to the sector.

He said: “While this quarter’s drilling activity showed a decrease when compared to Q2, cumulatively we can see 2012 eclipsing drilling activity in 2011. We’re still not seeing pre-recession levels of activity, but there’s a definite feeling of some confidence coming back to businesses operating in the UKCS.”

New field allowances introduced by HMRC, including the shallow water gas allowance, are starting to deliver benefits and the Government’s plans to create more certainty around decommissioning tax relief is likely to encourage further interest in the sector.[Page Break]

Graham Sadler said: “The Government’s efforts to stimulate activity through a series of tax relief schemes are starting to filter through and, along with a sustained high oil price, smaller and technically challenging fields continue to be a much more attractive investment proposition than might have otherwise been the case.”

In Norway, drilling activity fell by 44 per cent in Q3 compared to the same period last year, although activity has largely focused on appraising existing discoveries and exploiting major fields as opposed to new well exploration and appraisal. No new field development approvals have been granted by the Norwegian Government, and no new production began during the third quarter.[Page Break]

By contrast, there were a healthy number of new field start-ups offshore the UK, with Q3 2012 marking a greater number of new fields coming onstream than in the whole of 2011. Seven fields have come online this year so far, compared to the five noted last year.

Graham Hollis, energy partner in Deloitte’s Aberdeen office said: “A lot has been done to rebuild investment confidence after the North Sea tax imposed in 2010, which is being demonstrated in these encouraging figures.
“The UKCS is performing well against the rest of North West Europe across all the key indicators of activity and, particularly when set against the broader economic background, provides reason for future optimism.”

The average Brent oil price for the third quarter was USD 109.63 per barrel. However, in July the average price was USD 102.79 – the second lowest price seen this year. Nonetheless, oil prices remain strong, hovering around the USD 100 per barrel mark.

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