Drilling Activity Resurgance on UK Continental Shelf

Increased UK drilling and deal activity leads the way back to health in North West Europe says new report.

A broader range of tax allowances and a sustained high oil price boosted drilling activity on the UK Continental Shelf (UKCS) by one third in 2012, according to a new report by Deloitte, the business advisory firm. 

The report, compiled by Deloitte’s petroleum services group (PSG), which documents drilling and licensing activity across North West Europe for the whole of last year, shows 65 exploration and appraisal wells were drilled on the UKCS in 2012, marking a 33% increase on last year’s total of 49. This compares to lower drilling activity levels reported in Norway in 2012, down by 19% when compared to the previous year.
 
A range of other key indicators suggest positive prospects for the sector in 2013, following a range of tax breaks introduced by the UK Government to stimulate activity in the North Sea during 2012.

Last year also saw a surge in deal activity (where oil and gas fields are bought and sold). Across North West Europe, 129 deals were announced, 80 of which took place in the UK. This equates to a 30% increase on the UK’s 2011 deal figure. These were split almost equally between farm-ins – companies taking a stake in another company’s field – and deals to purchase oil and gas fields, at 40% and 43% respectively. This compares to 64% of all deals in 2011 being farm-ins and deals to purchase fields only representing 14%. The fact that companies are buying more fields outright is another indicator of rising investor confidence.
 
Interest in field development also reached a 10-year high. The Department of Energy and Climate Change (DECC) granted 21 field development approvals, and eight incremental projects – investment in older fields for redevelopment - were sanctioned. Last year was also the fourth consecutive year in which steady growth in field development approvals was reported.
 
Graham Sadler, managing director of Deloitte’s PSG, said current circumstances were driving confidence in investment on the UKCS.
He said: “After several years of caution and uncertainty, we have a more positive environment, where a number of factors such as tax incentives, high oil price and appetite to invest have combined to make 2012 the most encouraging year for a long time.

Derek Henderson, energy partner for Deloitte in Aberdeen said: “North Sea oil and gas production may have passed its previous zenith, but in the recently announced tax reliefs the UK Government has what appears to be a useful strategy to manage the decline in North Sea’s reserves.
 
“This creates what every industry sector needs – confidence – and investment in developing new fields and delivering production will benefit from the kind of environment which we are currently experiencing.”