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Geometric Drilling - UK Based onshore drilling contractor

Tough conditions hit activity levels for UK offshore oil and gas exploration

19 January 2010

Offshore oil and gas exploration and appraisal activity in the seas off the UK dropped by more than 35 percent last year. The figures are thought to reflect a potent mix of macroeconomic misery combined with unpredictable rig availability and oil price volatility during the early part of 2009.

According to the latest North West Europe Review, which is compiled by the Petroleum Services Group at business advisory firm Deloitte, during the last 12 months a total of 78 exploration and appraisal wells were drilled. That was a fall from 121 in 2008 as drilling levels slipped to those last seen in 2004.

Deloitte’s figures show that exploration wells almost halved during 2009 and appraisals were down 25 percent on the year before. Meanwhile, during the final quarter of last year only 13 wells were spudded – down 54 percent on the third quarter and 38 percent fewer than the fourth quarter of 2008. Those figures add up to the lowest level of activity since the second quarter of 2003.

Throughout 2009 as a whole, the area which suffered most was the Northern North Sea with activity down 65 percent compared to the year before. Activity also fell overall by 60 percent in the Southern North Sea while the Central North Sea saw a 47 percent decrease and the Moray Firth also witnessed a 26 percent decrease in new spuds.

On a brighter note, there was a rise in drilling activity in the West of Shetlands and the Atlantic margin with a 23 percent increase, while the first wells were also drilled in the East Irish Sea since 2005.

Graham Sadler, the managing director of Deloitte’s Petroleum Services Group, said: “These latest drilling figures are a clear reflection of the difficulties faced by the industry during 2009, both in terms of macroeconomic conditions and a number of industry specific issues such as rig availability and oil price volatility in the first half of 2009. Some drilling success around West of Shetlands and the Atlantic margin has stimulated a modest regional increase in activity.”

Derek Henderson, a senior partner for Deloitte in Aberdeen added: “In 2009 companies have needed to prioritise cost control and implement cash bolstering strategies to ensure they achieved as strong a financial position as possible during the recession.”

“Although 2010 has heralded a much more positive outlook, the economy remains fragile and many energy firms will continue to implement those strategies that have served them well during 2009. Spending will remain cautious during 2010 and companies are likely to continue to carefully balance general economic conditions and their company’s growth ambitions. Looking forward we would hope that less volatility in commodity prices and more stable operating conditions would improve confidence and overall activity levels.”

Energy reliability

Earlier this month there were calls from industry body Oil & Gas UK for the Government to ease the North Sea tax regime in order to stimulate more activity by companies in the region. The calls by energy policy manager, David Odling, came as a surprise cold snap in the UK put pressure on the country’s gas network and left observers asking tough questions about the long-term reliability of the UK’s energy supply.

In particular, Oil & Gas UK warned against downplaying the remaining potential of the UK’s indigenous gas in securing energy supplies. It said that while production was past its peak, there could be 1.5 trillion cubic metres of gas to be recovered – which could last up to 30 years.

Mr Odling said: “In terms of securing our energy supplies and maximising tax revenues and energy-related employment in the UK, it would be a big mistake to leave our own gas resources beneath the seabed. The Government should now work with the industry to rebalance the tax regime to ensure we make full use of our own resources; frankly, our experience over the last few days clearly demonstrates that the country cannot afford to do otherwise.”

According to the latest Government figures, total indigenous UK production of crude oil and natural gas liquids fell by 10 percent year-on-year in the third quarter of 2009 to 14.7 million tons. The fall was largely blamed on extended maintenance work on the UK Continental Shelf.

Seven new fields started production in the year ending September 2009 but they were insufficient to make up for the general decline in production from older established fields. As a result, the UK was a net importer of oil and oil products in the third quarter of 2009 by 4.0 million tons, up from 2.2 million tons in the same period of 2008. This represented the largest gap between imports and exports for the last ten years.

Elsewhere, total indigenous UK production of natural gas in the third quarter of 2009 was 18.6 percent down on the same period in 2008.

Ben Hobson, Small Cap News