E&P firms compete to drill 180 UKCS wells in 2006-08

Uchenna Izundu
International Editor

LONDON, Dec. 13 -- Oil and gas exploration and production firms operating in the UK Continental Shelf (UKCS) are planning to drill about 180 wells in 2006-08, according to a report published by North Sea consultancy Hannon Westwood. Around $2 billion/year of investment will be required to boost production from the mature province.

Companies will compete intensely for drilling rigs, the consultancy added, noting that utilization of Europe's 72-rig offshore fleet is 93-100%. There are 143 companies with UKCS interests, many of which are small independent North Sea companies and listed on the Alternative Investment Market in London. The wells are expected to add 500 million boe/year of reserves.

A key problem for small companies is accessing finance for their drilling operations, but this has been particularly exacerbated recently because of the growth of junior companies looking for oil and gas in the UKCS, delegates told OGJ at the Prospects Fair in London. The event, organized by the UK government's Department for Trade and Industry, and the Petroleum Exploration Society of Great Britain, which brings small companies together to seek partners in developing their prospects.

"With more opportunity than available funds over the next few years, we can expect a wave of mergers or acquisitions among those 80 companies who have exploration licenses but do not have North Sea production," said Charles Westwood, Hannon Westwood founding partner. "Perhaps 30 of these 80 new-start companies will survive in the long run."

The strong competition for exploration opportunities has been demonstrated by the record number of applications for acreage under the UK's 24th licensing round. The results have not yet been announced, although they are meant to be reported in the fall. About 141 companies have applied for licenses. DTI said the results have been delayed because it is carrying out additional environmental checks against the applications to comply with the European Union's Habitat Directive.

The report added that the ownership of licenses and acreage has changed. "We have gone from a license system, where acreage could be held with little effective challenge for up to 40 years, to a system where a 3-year lull in activity will now place the property on the ramps for either third-party investment or relinquishment," the report said.

The UKCS, it said, has entered into a dynamic period "when value is no longer measured simply by traditional production but is also much more a function of exploration acreage and secured drilling activity."

Contact Uchenna Izundu at uchennai@pennwell.com.

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