Drilling activity drops 20% but exploration up

Monday 18th October 2010
Offshore drilling in the UK Continental Shelf (UKCS) has fallen by 20% during the third quarter of 2010, compared to the same period last year. The industry also continues to experience lower levels of appraisal activity, according to the latest oil and gas industry figures released by Deloitte.

The latest North West Europe Review, compiled by Deloitte’s Petroleum Services Group (PSG), reveals a total of 24 exploration and appraisal wells were spudded in the UK sector between July 1 and September 30, compared with 30 exploration and appraisal wells during the same period in 2009.

Graham Hollis, Deloitte energy partner in Aberdeen, said: "Despite a more consistent oil price recently, it is likely that what we are seeing is the continuing impact of the recent economic crisis playing out in this year’s North Sea drilling activity.

"Many companies adopted a more cautious approach to drilling schedules during the recession as they placed emphasis on cash flow and controlling costs and these continue to be priorities for many organisations.

"This approach is illustrated further by the fact that so far in 2010 there has been a net decrease of 9% in exploration and appraisal activity when compared to the same period of 2009."

There has been a 4% rise in the number of wells spudded in the UKCS in the third quarter of this year, compared directly to the second quarter of 2010. This can be attributed to higher levels of exploration drilling in the UKCS, up 38% for the first three quarters of 2010 when compared to the same period of 2009.

International deal activity saw a marked increase during the third quarter of 2010, following a period of no activity at all in the previous quarter. Most notable were the corporate acquisitions announced following KNOC’s acquisition of Dana and EnQuest’s decision to buy Stratic Energy.

However, corporate level activity within the UK has decreased since the second quarter of 2010 with only one corporate asset sale announced compared to three announcements and one completion in the previous quarter.

Graham Sadler, managing director of Deloitte’s Petroleum Services Group, said: "It isn’t a huge surprise to see deal activity in the UK decreasing for a second consecutive quarter.

"The sustainability of the recovery continues to dominate the market in the UK and credit conditions have only recently started to appear more favourable again.

"There is evidence of a shift in company strategy as organisations are opting for less costly and less risky policies as they look to adjust their portfolios. This is reflected in the fact that the number of farm-ins announced has almost tripled this quarter to 11, in comparison with just four announcements during the second quarter.

"Until more confidence in the recovery of the market becomes further evident, this may be a trend that continues in the future."

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Mike Jones