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Brighter summer expected for North Sea after long winter

18 April 2013

  • UK to pick up on 2012 momentum after subdued drilling and deals in Q1
  • Confidence still high because of Government tax incentives

The UK’s prolonged winter muted drilling and deals growth in the North Sea after a strong finish to 2012, according to a new report from Deloitte, the business advisory firm, into offshore activity.

The report, compiled by Deloitte’s Petroleum Services Group (PSG), tracks upstream activity across North West Europe and found that both drilling and deals (where oil and gas fields are bought and sold) on the UK Continental Shelf (UKCS) levelled out during the first quarter of 2013.

Nine new wells were drilled during that period, compared to 11 in the same quarter in 2012 and 19 in the last quarter of last year. North West Europe as a whole had a total of 23 exploration and appraisal wells drilled during the first quarter of 2013, compared to 25 wells in the first quarter of 2012.

However, Derek Henderson, senior partner at Deloitte in Aberdeen, said confidence in the North Sea was still high thanks to Government tax incentives, and predicted an increase in drilling and deals throughout the rest of this year.

He said: “Generally activity eases during the first quarter each year and, based on the second half of last year, we would certainly expect later spring and summer to demonstrate a return to the kind of momentum we saw then.

“The oil price is still favourable and there are an increased number of incentives to encourage investment in North Sea exploration and development.”

Farm-in agreements, where a company takes a stake in another company’s field, were a key part of deals activity offshore the UK in Q1. They accounted for 36 per cent of deals completed following the recent 27th Licencing Round, which brought new entrants to the UKCS. First quarter deal activity overall was slightly down on the first quarter of 2012, with 19 deals compared to 23.

Field developments have also remained steady. During the first quarter of 2013, two fields have received field development approval from the Department of Energy and Climate Change (DECC), with three fields coming on-stream. For the same period in 2012, four fields received field development approval, while no fields were brought on-stream. Of the five fields that have received approval or come on-stream this quarter, four qualify for the small field allowance and one qualifies for the ultra-heavy oilfield allowance.

Graham Sadler, managing director of Deloitte’s PSG, said the shift in pace during the last quarter was not a sign of waning appetite from UKCS participants.

He said: “Deal volume may be down, but it is still relatively strong and the increasing proportion of farm-ins would suggest the need for smaller companies to seek funding partnerships for future drilling. Drilling rigs are also at a premium currently, with 96 per cent rig utilisation for the first quarter of 2013, so there is a lot of activity.

“Most markets have seasonal changes and the UKCS is no different in that respect; from where we sit there is every reason to expect the North Sea to continue the growth it achieved last year as we continue into 2013.”

Read the full report.

End

Notes to editors
Deloitte’s Petroleum Services Group
Deloitte’s Petroleum Services Group (PSG) produce the Drilling and Licensing Review quarterly; this provides detailed information on proposed new and completed wells and an overview on all licensing and deal activity in North West Europe. This review is collated from information produced by PSG's Weekly Service, a report distributed to subscribers each Wednesday. The analysis contained within the latest review (Q1 2013) is a summary of activity between 1 January and 31 March 2013

For more information about the group visit www.deloitte.com/petroleumservices

About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.

The information contained in this press release is correct at the time of going to press.

Member of Deloitte Touche Tohmatsu Limited.

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