Deloitte sees 36% decline in UK North Sea drilling

Drilling activity in the UK North Sea has fallen by 36% year-on-year despite an oil price of more than $100/bbl which would normally encourage increased exploration activity.

“Elsewhere in northwest Europe, this buoyant oil price has driven high levels of drilling activity,” said Graham Sadler, managing director of Deloitte's petroleum services group.

“It could be that factors, including the relative geological maturity of the UK sector, compared to some adjacent regions, and the alterations made to the UK fiscal regime earlier this year have impacted business confidence,” said Sadler.

In March, the UK’s Treasury raised the top rate of tax on profits from North Sea production to as much as 81%, a move that was decried by international oil companies as a disincentive to investment.

Sadler said the tax hike was likely to have had an even sharper effect on smaller exploration companies, which in recent years have played a major role in driving activity in the region.

“Some smaller, UK-focused companies may also have experienced difficulties securing finance to fund exploration and appraisal drilling in recent months,” Sadler said.

“A combination of the tax increases announced in the [UK’s] 2011 Budget and general market instability around the euro-zone crisis, has led to some of these companies losing significant corporate value,” Sadler said.

“This may have inhibited the ability of smaller companies, which today hold significant acreage on the [UK Continental Shelf], to finance drilling programs planned for 2011,” Sadler said.

Deloitte’s North West Europe Review, which documents drilling and licensing on the UKCS, said 16 wells were initiated between July 1 and Sept. 30.

The 16 wells represent a 45% increase over the 11 wells initiated in the second quarter. However, the 16-well figure was also 36% fewer than during the same period last year.

The total number of wells drilled so far in 2011 stands at 37, a 41% decrease on the same period last year and represents the lowest number of wells drilled during this period since 2003.

By contrast, Norway’s sector of the North Sea saw 16 wells started in the third quarter of 2011, which is double the number of wells compared with the same period last year.

The 16 new wells equal the figure for 2009 which saw the highest levels of drilling activity on the Norwegian Continental Shelf to date.

Contact Eric Watkins at hippalus@yahoo.com.

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