Deloitte: North Sea production, licensing up in 2013

An increased focus on development activity by operators in the UK resulted in a 5-year high in the number of fields that started oil and gas production, according to a report on offshore activity released by Deloitte on Jan. 29.

Thirteen fields started production in 2013, better than the nine that started up in 2012. Deloitte notes that 11 of those fields were eligible for tax allowances, signifying positive industry reaction to the government incentives in place.

Meanwhile in the 27th licensing round, UK’s Department of Energy and Climate Change confirmed 219 awards were offered following a record-high 224 applications, which boosted optimism heading into the 28th licensing round on Jan. 24 (OGJ Online, May 23, 2012; Dec. 2, 2013).

Dana Petroleum has been particularly active in the North Sea as of late, making two discoveries in 2013 and five in the last 3 years. The company was awarded two exploration licenses in the 27th round (OGJ Online, Dec. 9, 2013).

Exploration activity down

However, just 47 exploration and appraisal wells were drilled on the UK Continental Shelf in 2013, compared with 65 in 2012, a decrease of 28%, Deloitte said. During the same period, the Norwegian Continental Shelf experienced a 41% increase in drilling activity.

“The North Sea industry is complex and companies operating in there have to consider many factors,” said Graham Sadler, managing director of Deloitte’s PSG. “Despite the high oil price, margins are tight and the drop in drilling during 2013 most likely reflects the increased costs of operating. Staff costs remain high and access to equipment such as rigs, which are limited in number, drives prices upwards.

Sadler continued, “Nevertheless, we are seeing evidence that government incentives are helping to stimulate field developments—even historic discoveries—with Chevron’s recent announcement that it will start work on the Alder field, which was discovered in the 1970s.”

Chevron North Sea Ltd. in July 2013 let several contracts worth a total of £550 million for subsea development work for the Alder and Rosebank deepwater projects offshore UK (OGJ Online, July 23, 2013).

“Advances in technology have also been vital to the development of this and other historic discoveries,” Sadler added. “However, incentives and technology are not the whole picture. Greater overall knowledge and understanding of the North Sea’s complex geology and economics also play an important role in the current viability of these older discoveries.”

Lingering North Sea hesitation

While an increase in field start-ups and license applications is encouraging, many companies remain hesitant to invest in the North Sea.

“We have recently seen a number of announcements of significant—and in some instances, all-time high—levels of investment in the UKCS,” said Graham Hollis, energy partner at Deloitte in Aberdeen said. “However, a number of other companies, some of whom have been key players in the UK sector for many years, have publicly announced or are taking steps that seem to indicate that the North Sea is no longer a core focus for investment within their global portfolios.

“Any longer-term decline in exploration and appraisal drilling will be of concern and there are measures that seriously need to be considered by industry and government to reinvigorate drilling activity and ensure the longevity of the UKCS,” Hollis concluded.

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