North Sea drilling report indicates positive trend in Q2

North Sea drilling activity remained steady during Q2 2013, with 16 exploration and appraisal wells drilled in the UK in that period, business advisory firm Deloitte reported. The group also noted a positive forecast for the next two quarters.

Although the number of new wells drilled on the UK Continental Shelf (UKCS) fell slightly compared with the same period last year, the level of exploratory activity remains healthy. The 16 exploration and appraisal wells in Q2 represent seven more wells than during Q1 but two fewer than the same period last year. Despite the slight fall compared with 2012 figures, Q2 2013 still produced two more new wells than the quarterly average since the end of 2011 – a year that saw the lowest activity since 2003. Across Northwest Europe, 35 new exploration and appraisal wells were drilled – 10 more than in Q1 but only matching Q2 2012.

Graham Sadler, managing director of Deloitte’s Petroleum Services Group, said the latest figures are in line with what would be expected from a mature region such as the UKCS. “These figures indicate the UKCS remains a strong and productive sector, which bodes well for the final two quarters of the year. I fully expect to see further positive figures in quarters three and four as the region recovers from a prolonged and harsh winter, which was followed by an unusually late spring.”

A notable feature of Q2’s report is the significant increase in farm-in style agreements, where one company takes a stake in another company’s field, often to assist with drilling or development costs. Farm-ins accounted for approximately 70% of the total Northwest Europe deal landscape during Q2. A total of 30 deals were completed in the region, slightly down from the 35 that were completed during the same period last year.

“The number of smaller companies operating in the North Sea, as many major firms move to less mature areas, in part explains the significant increase in the number of farm-in deals. Farm-ins allow smaller companies to benefit from pooling resources and equipment, such as drilling rigs, enabling them to access existing North Sea reserves,” Mr Sadler said.

In development activity, six fields were granted development approval and four actually came onstream across UK and Norwegian waters. Although the number of fields coming onstream in the UK (three) is down from the same period in 2012 (five), Deloitte reported that innovative technologies have enabled previously “subcommercial” developments – those that might not have been considered economically viable. This is further incentivizing exploration and development in the area.

Further, the firm was optimistic on the future of the overall North Sea drilling market. “This quarter’s stable drilling figures should not detract from the fact that the UKCS is experiencing high activity levels. The market is currently buoyed by a number of factors, including a stable oil price, increasing investment and government incentives. With a more positive domestic outlook also beginning to emerge across the rest of the UK, there is a lot of confidence in the outlook for the North Sea sector,” Graeme Sheils, energy partner at Deloitte in Aberdeen, said.

He continued: “Frontier areas, such as offshore west of Ireland, are also attracting attention, where the industry awaits the results of the Dunquin well. The highly anticipated results of this exploratory well could spur further activity, with a number of companies already having farmed-in to offshore acreage this year. While a nice problem to have, success will bring further pressure in finding and securing the skilled resources needed to exploit the available opportunities, which is an ongoing challenge in the Northeast.”