The report, which documents drilling, licensing, field developments and new field start ups in North West Europe’s oil and gas industry throughout 2011, shows that the UK Continental Shelf (UKCS) experienced a 34% decrease in drilling activity year on year with a total of 49 wells spudded compared to 74 wells in 2010. This is the lowest level since 2003 and represents a 37% drop on the average number of wells spudded each year for the last decade.
The trend in the UK is very different from the rest of North West Europe, however, with the Netherlands, Denmark and Greenland experiencing levels either above or equal to the previous year. Norway saw the largest increase with a 12% rise from 2010.
The report by analysts at Deloitte’s Petroleum Services Group shows:
* New field start ups continued to drop across both the UK and Norway.
* New field development approvals rose.
* Deal activity similar to 2010 but down 25% from 2009.
* Farm-in deals remain the most common type of deal, accounting for 53% of all activity.
* New players and companies are entering the UK, Norway and Ireland following the latest licensing rounds.
"The low activity on the UKCS is not what we would normally expect in a year when the average monthly Brent oil price has remained well above $100 USD per barrel, however, the downward trend is the result of a number of factors rather than any one single issue,” said Graham Sadler, managing director of Deloitte’s Petroleum Services Group.
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"While the Supplementary Charge Tax imposed early in 2011, and further alterations to the fiscal regime, may have affected business confidence, given the lead time required for planning and drilling of exploration and appraisal wells, the full effect of this tax change may not be evident until the end of 2012 and beyond.
"It is more likely that a delayed reaction to the 2008 recession, current economic and market factors, delays affecting rig availability and the maturity of the UKCS are the key contributing factors."
It is also possible that the impact of the financial crisis is more evident on the UKCS, compared to other regions, due to the range of companies which hold acreage there now. 33% of the wells drilled in the UK during 2011 were operated by small independents and 39% by medium sized independents that may have been prone to difficulties in acquiring capital for investment in drilling.
Despite this, the report shows there has been a continued appetite for investment in the UK with a larger number of significant development projects granted approval during 2011.
"This is a sign of companies looking to get the best return on their investment by monetising their assets during a period of sustained high oil price. The same trend can be observed in Norway with an increase in the number of development plans granted approval during 2011," added Sadler.
"Moving into 2012 it is unclear whether levels of exploration and appraisal drilling will return to pre-2011 levels as the current factors driving decision making may continue to have an influence, along with the limited number of outstanding well commitments still to be met from the UK’s 25th and 26th Licensing Rounds, which may see levels continue to remain low in the next few years. We would however expect to see additional investment coming onstream in the months ahead and a number of field developments pushed forward."
Deal activity in 2011 remained positive with a total of 73% of the 118 deals recorded throughout North West Europe taking place in the UK (52%) and Norway (21%). Farm-ins remained the most common type of deal (53%) with asset acquisitions representing 18% of all activity, a marginal increase on 2010 figures.
Graham Hollis, energy partner at Deloitte in Aberdeen, said: "The sustained oil price is thought to be the main driver for the increase in merger and acquisition activity and asset acquisitions in 2011 compared to 2010. Companies had the opportunity to review their portfolios or increase their equity interest in reserves and the oil price may have allowed companies to take larger, more risky deals. This may also have led to companies buying more producing assets as opposed to exploration assets.
"The recent high levels of farm-in activity most likely indicates that a number of financially stressed companies were seeking partners to mitigate financial risk and meet their work commitments. Interestingly the number of asset acquisitions was lower in 2011 and 2010 compared to the two years before as were corporate deals and international deals.
"This again is likely to be due to companies reacting to the recession in the UK but also due to the high premiums paid for asset and corporate deals at a higher oil price."
(GK/DW)
