UK drilling activity lowest since 1999: Deloitte

Drilling activity offshore UK fell by 20pc in 2014 to its lowest number since 1999, although offshore Norway, drilling levels were largely stable compared with 2013, according to financial services company Deloitte.

Drilling activity across northwest Europe as a whole was also stable, with 125 exploration and appraisal wells drilled last year, compared with 124 in 2013. Drilling offshore UK was down to 40 wells, from 50 in 2013, while offshore Norway, drilling activity was down to 57 wells drilled last year compared with 59 a year earlier.

The number of wells drilled offshore UK is 47pc less than the average annual number of wells drilled for the last 10 years, Deloitte said. Of the 40 wells, 22 were exploration and 18 were appraisal wells. Only five wells encountered hydrocarbons, while results from the other 19 were either unreported, or were reported as tight, or showed no hydrocarbons. The results for the remaining 16 wells are due this year.

No drilling activity was reported offshore Greenland, Ireland or Germany. The Netherlands saw drilling activity double to 20 last year.

Asset deal activity has fallen by 45pc across northwest Europe, with 67 deals announced last year compared with 121 in 2013. Norway saw 42pc of all deals, with the UK taking 34pc of all deals. Of the 67 deals, 63pc were farm-ins, followed by asset transactions at 15pc and corporate transactions at 13pc. Asset swaps and divestitures represented 6pc and 3pc of deal activity in northwest Europe, respectively.

Deloitte sees more transactions this year though, as lowering oil prices make assets more affordable to cash-rich companies.

But the North Sea still needs more investment, according to Deloitte, which described 2014 as a year of change.

"To sustain its future, the North Sea's stakeholders will need to adapt to a lower oil price environment and reduce costs in order to get through this period of transition," Deloitte managing director Graham Sadler said.

"We continue to see steady but low levels of drilling and hope this will increase. But that will require industry dialogue with, and strong guidance from, the Oil and Gas Authority. It will also need further clarity from Government over the fiscal incentives that will be made available to support exploration and appraisal activity," he added.

Field development activity has dropped as the number of fields start-ups in the UK North Sea fell to six, compared with 13 in 2013. Of the six, four were eligible for a UK tax allowance, a 54pc fall compared with 2013. In the Norwegian section of the North Sea, five fields came onstream in 2014, unchanged from 2013. Norway offers companies the chance to claim back 78pc of exploration costs if no hydrocarbons are found, reducing the financial risk of drilling new wells.

et/dcb

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