UKCS Drilling Slumps to Six-Year Low - Study

Offshore drilling levels dropped to their lowest level in six years in the first quarter of 2010, according to the latest oil and gas industry figures released by Deloitte.

The latest North West Europe Review, which documents drilling and licensing in the UK Continental Shelf (UKCS), reveals only four appraisal wells were spudded between January 1 and March 31, 2010. 

The review, produced by Deloitte's Petroleum Services Group (PSG), shows drilling has decreased by 33% overall compared to the same period last year.

However, while appraisals fell, exploration drilling has started strongly with twice as many exploration wells spudded in comparison to 1Q in 2009. 

Graham Sadler, managing director of Deloitte's Petroleum Services Group, said, "The net year-on-year decrease in drilling can be attributed to the sharp decline in field appraisals with the total quarterly appraisal spuds dropping by more than 70%. 

"In terms of completions, of the seven wells completed in the UKCS during 1Q, six were exploration wells and only one was an appraisal well. This has been a disappointing period for discoveries with none being reported by the operators." 

The Southern North Sea has seen the highest levels of activity during the first quarter of the year with 42% of UKCS spuds in the area, followed by 25% in the East Irish Sea and 17% in the Northern North Sea. 

The Moray Firth and the Central North Sea have seen one well each drilled during 1Q. 

Oil prices have been stable as prices slowly recovered following a turbulent end to 2009, with the average price over the first quarter at 76.78 USD/bbl. However, prices look set to rise over the coming months, driven by global demand. 

The first quarter of 2010 has seen a significant drop in the level of international deal activity with three deals, compared with five in the same period last year. We saw six domestic deals this quarter compared to four in the same period last year. 

Derek Henderson, senior partner for Deloitte in Aberdeen said, "This quarter's domestic deal activity can be seen against the backdrop of continued stabilization of the economic climate, with companies generally feeling more comfortable, financially, than they did 12 months ago. 

"In contrast to the drop in activity of large scale international corporate deals, corporate level activity in the UK has seen a dramatic increase in the first quarter of 2010, with six announcements, compared to just one in the fourth quarter of 2009. These announcements consisted of three corporate acquisitions, one reorganization and two divestitures." 

The usually buoyant asset acquisition activity has remained relatively quiet in the first quarter of 2010, with only one deal announced and one deal cancelled. In comparison, the same period of 2009 saw six new asset acquisitions announced. This decrease in activity may be attributable, in part, to the issues continuing to affect some of the independent oil and gas companies which relate to financing and the management of decommissioning liabilities. 

The report shows that for the first time in over 12 months, farm-in activity has exceeded levels of asset acquisitions as development schedules begin to come back online and companies look to share the risk in their drill prospects. 

However, despite the increased level of farm-in activity, the high number of asset divestitures has also continued into 2010.