UK economic gloom hitting oil explorers

 
City A.M. Reporter
OIL and gas firms drilled 34 per cent fewer wells in the UK-controlled parts of the Continental Shelf last year as the grim state of the economy took its toll, according to a report by Deloitte.

Operators drilled just 49 wells in UK waters compared with 74 wells in 2010, on a par with activity levels in 2003 and contrasting sharply to the Netherlands, Denmark and Greenland which saw stable or growing energy exploration.

Norway saw the largest increase of 12 per cent on last year, Deloitte’s 2011 end of year review showed.

Offshore drilling activity across north west Europe fell 12 per cent last year with 122 exploration and appraisal wells opened, while the pace of new field start ups continued to drop across both the UK and Norway, the report said.

“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 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.

The consultancy pinned the blame on a delayed reaction to the 2008 economic crisis, prevailing economic headwinds, rig shortages and dwindling stocks of North Sea oil and gas.

It said last year’s surprise tax hike on energy explorers may begin to be felt from 2012.

Explaining the sharp drop in activity relative to neighbouring countries, Deloitte said offshore exploration in the UK may be more susceptible to economic shocks given the rising number of small- and medium-sized independent explorers active in UK waters.

About one third of UK wells drilled during 2011 were operated by small independent energy explorers. Higher oil prices have led to greater investment with an increasing number of development projects granted approval in UK waters last year.

“The same trend can be observed in Norway with an increase in the number of development plans granted approval during 2011,” Sadler said.

As well as driving investment, the sustained high oil price likely underpinned growth in merger and acquisition activity and asset acquisitions, the report said.