Deloitte: Drilling on UKCS Down While Norway Experiences Growth

Offshore activities in the oil & gas sector are continuing to fall with the latest industry figures released by Deloitte showing that drilling operations within the UK Continental Shelf have more than halved in the last 12 months.

Deloitte's North West Europe Review, which summarises drilling and licensing in the region and is produced by its Petroleum Services Group (PSG), reports that only 15 exploration and appraisal wells were spudded in the UK between the beginning of April and the end of June 2009 -- a 57% decrease on the same period last year and a further 17% fall from the first quarter of this year.

Of the wells spudded, the majority (27%) of wells were located in the Moray Firth and West of Shetland (27%) which have not seen relative levels of activity this high before, with fewer than 10% of all UK wells situated there.

A further 20% were located in the Central North Sea, 20% in the East Irish Sea, with the Southern North Sea falling to 6%.

Graham Sadler, Director of Deloitte's Petroleum Services Group said, "Activity continues to reflect difficult economic conditions, a need to control costs and increasingly restricted exploration budgets. Interestingly, the Norwegian sector is experiencing growth in exploration and appraisal drilling with a 50% rise from the second quarter of 2008, aided by the activity of StatoilHydro and government tax incentives.

"Longer lead times on drilling West of Shetland has helped sustain levels in this region in comparison to areas such as the Southern North Sea."

Deloitte's Review also summarises licensing and deals, oil price fluctuations and corporate or asset acquisitions carried out since April of this year. The second quarter of 2009 saw the average Brent Blend oil rise 47% from 46.66 USD/bbl on April 1 to 68.50 USD/bbl on June 30.

Derek Henderson, Senior Partner for Deloitte in Aberdeen, said, "The 47% increase in the price of oil in the second quarter, coupled with some evidence of the price stabilising in recent weeks is certainly positive for the industry.

"However, oil price increases have not been mirrored in the natural gas market and price volatility for both oil and gas remains a risk. Combined with a sluggish economy, this is likely to mean that oil and gas exploration and production companies will proceed with caution and will continue to rein in unnecessary expenditure, in particular putting discretionary drilling on hold as high operating costs and tax burdens bite."