Increased drilling activity by UK oil and gas industry signals rising confidence

North Sea offshore drilling activity has risen by a dramatic 133% in the second 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 a total of 28 exploration and appraisal wells were spudded in the UK sector between April and June; 14 for each well type. This compares with a total of just 12 wells during the first quarter of 2010.

The Deloitte review, produced by its Petroleum Services Group (PSG), shows that whilst appraisal activity in the second quarter experienced a modest increase of 15% when compared to the same period in 2009, exploration activity has doubled in the second quarter of 2010.

The southern North Sea has seen the highest level of drilling activity, with the region representing 38% of all exploration and appraisal wells spudded on the UKCS during the second quarter of this year.

Graham Sadler, managing director of Deloitte’s Petroleum Services Group said it was important to view the latest figures with some caution, “This seemingly dramatic increase comes off the back of the lowest drilling activity levels that the UKCS had experienced in six years (Q1 2010). However, the second quarter drilling figures represent an 86% increase on the same period last year and are therefore reflective of an increasingly stable North Sea operating environment.

“Furthermore, a record 356 applications for blocks in the 26th Offshore Licensing Round demonstrates that there is clearly some confidence filtering back into the market.” 

The 26th Round offered all of its territorial waters for the first time in 12 years and included tax incentives to explore some areas for natural gas.

“Corporate activity has seen a significant drop with only one merger so far this year as companies look to focus on existing portfolios. The drop in UK deals follows on from the decrease seen in international corporate deals in the previous quarter. This provides further evidence of the stabilising climate.”

The report showed that the price of Brent Crude oil has remained relatively constant throughout the first half of 2010 averaging 78 US$/bbl in the first six months of the year, building from the decline seen in the early part of 2009.

Graham Hollis, energy partner at Deloitte in Aberdeen, said a number of factors were responsible for the upturn in activity, “The more stable oil price, improving credit conditions and the need for organisations to consider expansionary plans and capitalise on growth, post-recession, have created improved market conditions within the industry over the second quarter of 2010.

“The latest drilling figures, coupled with the recently announced opportunities such as the Bacchus and Catcher field developments are very positive. This proves there is still tremendous investment potential within the North Sea. This potential should provide further confidence for the sector and will hopefully serve as a catalyst for greater levels of finance to be made available to the companies looking to invest in the North Sea in the near future.

“However, fears of a double dip recession continue as financial markets remain volatile and with fiscal tightening in the UK, and abroad, we may still see further fluctuation in the industry over the coming months.”

Published on 08/07/2010


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