New Report: North Sea Oil Gushes, Less Interest in UK Continental Shelf

2013 saw a 44% rise in North Sea fields starting production but 28% drop in exploration and appraisal drilling, according to the end of year report by Deloitte’s Petroleum Services Group (PSG) which is offered by them as a summary as follows:

-      Fields starting production at highest level for five years
-      27th licensing round saw a record 219 applications
-      Drop in exploration and appraisal drilling suggests government incentives required

The report, detailing activity across North West Europe over the last 12 months and compiled by Deloitte’s Petroleum Services Group (PSG), found the number of UK fields which started production rose by 44% in 2013 (up from nine in 2012 to 13 in 2013). This figure represents the highest number since 2008, when 16 fields were brought on-stream.
 
Of the 13 fields brought on-stream last year, 84% were eligible for tax allowances, pointing to a positive industry reaction to the government incentives in place.
 
However, a total of only 47 exploration and appraisal wells were drilled on the UK Continental Shelf (UKCS) in 2013, compared with 65 in 2012 – a decrease of 28%. During the same period, the Norwegian Continental Shelf (NCS) saw a 41% increase in drilling activity.
 
Graham Sadler, managing director of Deloitte’s PSG, said that more needed to be done to encourage drilling on the UKCS, including incentives for exploration activity.

Sadler said: “"The North Sea industry is complex and companies operating in there have to consider many factors. Despite the high oil price, margins are tight and the drop in drilling during 2013 most likely reflects the increased costs of operating. Staff costs remain high and access to equipment such as rigs, which are limited in number, drives prices upwards.
 
“Nevertheless, we are seeing evidence that government incentives are helping to stimulate field developments - even historic discoveries - with Chevron (CVX)’s recent announcement that it will start work on the Alder field, which was discovered in the 1970s.
 
“Advances in technology have also been vital to the development of this and other historic discoveries. However, incentives and technology are not the whole picture. Greater overall knowledge and understanding of the North Sea’s complex geology and economics also play an important role in the current viability of these older discoveries.”
 
The 27th Licensing Round, however, saw record levels of applications and in November 2013 the Department of Energy and Climate Change confirmed 219 awards were offered, highlighting positive and continued interest in the North Sea. With the launch of the 28th licensing round, on 24 January 2014, we would hope to see continued interest in the offshore sector."
 
Graham Hollis, energy partner at Deloitte in Aberdeen said: "The rise in field start-ups over the last year and increased interest in licensing rounds are positive indicators for the future of the North Sea.  However, more than ever companies appear to be at a crossroads in their attitude towards it, with optimism and pessimism seemingly present in equal measure.
 
“We have recently seen a number of announcements of significant – and in some instances all-time high - levels of investment in the UKCS. However, a number of other companies, some of whom have been key players in the UK sector for many years, have publicly announced or are taking steps that seem to indicate that the North Sea is no longer a core focus for investment within their global portfolios.

“Any longer-term decline in exploration and appraisal drilling will be of concern and there are measures that seriously need to be considered by industry and government to reinvigorate drilling activity and ensure the longevity of the UKCS."

In 2013 Sir Ian Wood published an interim report: – 'The UKCS Maximising Recovery Review' into how to secure the long-term future of the UKCS, which made a number of recommendations on how to ensure continued investment in the area. The full report is expected this week, add Deloitte.

For more information: www.deloitte.com/petroleumservices