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Drilling Activity on UK Continental Shelf had Mixed Start to 2012

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Offshore drilling activity on the UK Continental Shelf (UKCS) rose marginally during the first quarter of 2012, compared to the same period last year.  However, exploration and appraisal activities are still 66 percent lower than in the first quarter of 2008 – the last spike in annual drilling activity – according to the latest industry figures released by Deloitte on Friday.

The report, which documents drilling and licensing across North West Europe between January 1 and March 31 2012, shows 11 wells were spud on the UKCS during this period, an increase of 22 percent on the first quarter of 2011.
 
Despite this, the figures from the latest quarter show a 15 percent decrease on the final quarter of 2011, as well as a 42 percent drop when compared with the average number of wells spud in the first quarter of the last five years. However, analysts at Deloitte say the signs point to a more positive year ahead for the oil and gas industry:
 
"The difference in activity between the last three months of 2011 and first quarter of 2012 is not altogether surprising.  The winter season restricts offshore activities and the number of commitment wells from the 25th and 26th licensing rounds is quite low.  In addition, companies continue to be cautious in the face of an ongoing uncertain economic climate," said Graham Sadler, the managing director of Deloitte's Petroleum Services Group.
 
"However, more recent figures for March indicate an increase in drilling into the spring with seven spuds in March compared to a total of four during both January and February. Furthermore, the tax relief measures announced by the [UK] government in last month's Budget have been welcomed by the industry and this may result in renewed confidence over the course of this year.
 
"Although some of the details will be determined through a consultation process in the coming months, more certainty around decommissioning liabilities should enable companies to recover cash flow at the time of decommissioning which may result in more expendable cash to spend on exploration and appraisal."
 
Sadler added: "It is still a little early to make predictions; however, the increased fiscal stability and the high oil price should lend themselves to an increase in drilling going forward. I would hope this slow and steady first quarter could mark the start of a positive upward trend for 2012."
 
Elsewhere in Europe the trend is mixed, with a decrease in activity in Norway and little change elsewhere.
 
Meanwhile, deal activity in 1Q 2012 fell 18 percent compared to 4Q 2011, with a total of 37 deals recorded throughout North West Europe. Of those, 60 percent were on the UKCS with farm-ins and asset acquisitions remaining the most common type (40.5 percent each).
 
Graham Hollis, energy partner at Deloitte in Aberdeen, said: "Interestingly, the relatively high numbers of farm-ins we saw recorded in recent years, as companies sought partners to mitigate financial risk, is now being matched by a rise in the number of asset acquisitions as more companies are keen to acquire assets outright.
 
"This is the result of companies taking advantage of the high oil price to review portfolios and buy into producing assets. It is encouraging to see these sustained levels of activity on the deals side."
 
The average monthly Brent oil price has also experienced sustained growth during the first quarter, altering from the declining trend that ended 2011. It averaged $118.43 per barrel, rising from $110.49 in January and steadily increasing to $125.38 in March.
 
"The oil price has increased steadily since 2009 and in conjunction so has the number of field development approvals on the UKCS," added Hollis.
 
"During this first quarter of 2012, four field developments and three incremental projects were granted approval. This is a positive start to the year and if rates of approvals continue as seen throughout 1Q 2012 then similar levels to 2011 can be anticipated for 2012.  In 2011 a total of 12 field developments and six incremental projects were approved.
 
"This trend shows a sign that companies are looking to get the best return on their investment by monetizing their assets during a period of sustained high oil price."

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