Drilling activity declines slightly in Northwest Europe for 2015

July 31, 2015
Annual drilling campaigns are usually well under way by midyear and can suggest what to expect for the remainder of the year.

Matthias Sasso
Hannon Westwood

Annual drilling campaigns are usually well under way by midyear and can suggest what to expect for the remainder of the year. The fall in oil price at the end of 2014 resulted in somber predictions for drilling activity, especially in relatively high-cost regions such as offshore Northwest Europe. This review looks at emerging trends from exploration and appraisal drilling to date in 2015 for the UK, Norway, Denmark, and the Netherlands.

Figs. 1a-1c show an overview of drilling activity from 2000-14 for the UK, Norway, and the Netherlands. UK drilling activity peaked in 2007 when operators spudded 122 wellbores (including sidetracks). Activity steadily declined to 2014, with only 37 wellbores drilled.

Drilling activity in Norway during the same period was steady until 2005, though has since increased. Exploration drilling peaked in 2013, accounting for 45 of 59 wellbores. The high rate of exploration drilling continued in 2014 with 43 exploration wells recorded from a total of 56 wells.

The Netherlands sector only covers the eastern part of the offshore Permian gas basin, and this is reflected in much lower activity levels than the UK and Norway. Drilling rates over the period have remained steady at as many as 10 wellbores/year, on par with the equivalent part of the Permian gas basin in the UK.

UK activity

There have been 10 new well spuds (five exploration, five appraisal) in the sector during 2015. There also have been well programs carried over from 2014: Dalziel and Drumtochty (exploration) and Franklin and Kraken West (appraisal). The programs on Dalziel, Drumtochty, and Kraken West were technical successes and Franklin is an assumed success as the final sidetrack was suspended.

The rate of activity in 2015 is lagging behind 2014 levels when 25 well spuds were recorded for the whole year (13 exploration, 12 appraisal). Our current projections suggest a yearly total in the low 20s.

Les Arcs, drilled by Apache Corp. in the central North Sea, is the only recent discovery in the region. The operator drilled the well from the Forties Alpha Platform, targeting a near-field Upper Jurassic trap. Although estimated reserves are modest, about 9 MMboe, direct access to the production platform should ensure a positive economic outcome even at the current oil price.

In line with its strategy of maximizing near-field potential, Apache is currently drilling the K-Prospect (Well 9/19b-18) in the Greater Beryl area of the northern North Sea. The central North Sea has the most activity with wells on Manhattan (Nexen Inc.) and Corfe (Total SA), each with potential reserves of 85 MMboe. Success on either well would encourage drilling on surrounding targets. In the southern North Sea (gas basin), Wintershall Norge is drilling the Sillimanite prospect, a Carboniferous target with potential of more than 80 MMboe.

Appraisal drilling has only one confirmed success to date at Humphrey in the southern North Sea, a small accumulation, which prior to appraisal had estimated resources of only 3.3 MMboe (20 bcf), with tieback potential to Cygnus field. An extensive program is ongoing in the Captain field area (Chevron Corp.), while the industry awaits confirmation of results on Jasmine (ConocoPhillips) and Sparrowhawk (Nexen) in the central North Sea (Fig. 2a).

Our 12-month UK outlook includes eight wells, all exploratory, for which operators have submitted petroleum operations notices to UK Department of Energy and Climate Change. Drilling has not started at any of them. We estimate operators will drill another five discretionary wells, including appraisal wells. On this basis, we predict between 20 and 25 exploration and appraisal wells will have spudded by the end of 2015.

Off Norway

There have been 23 new wells spudded (19 exploration, four appraisal) in the Norwegian sector during 2015. These have yielded seven discoveries: Skirne East, Morkel, and Zulu (North Sea); Imsa, Snefrid Nord, Roald Rygg, and Gymir (Norwegian Sea). These discoveries account for 114 MMboe of reserves (ranging in size from 4 to 42 MMboe), averaging 16.3 MMboe/discovery. Accounting for dry holes, the average finding rate is 8.2 MMboe/exploration well.

The majority of exploration drilling has occurred in the North and Norwegian Seas, with only the unsuccessful Bjaaland well drilled in the Barents Sea. Exploration drilling activity remains buoyant in Norway, aided by the 78% subsidy on exploration and appraisal drilling costs from the Norwegian government. More than 40 exploration wells are likely to spud in 2015, which is in line with the previous 2 years. Currently there are six active wells in the North Sea: Julius, Gina Krog East 3, Ivar Aasen (all Statoil), Havfrue (Suncor Energy Inc.), Crossbill (Wintershall), and Fosen (Lundin Norway AS) (Fig. 2b). In the Norwegian Sea, drilling is ongoing at the Zumba Prospect for Tullow Oil PLC.

Appraisal drilling has led to two confirmed successes this year. Det Norske Oljeselskap ASA drilled the first on Ivar Aasen in the North Sea where operations are ongoing. The second was on Alta (Lundin) in the Barents Sea, which is in the process of being sidetracked (OGJ Online, June 24, 2015) (Fig. 2d). Potential reserves are 267 MMboe. A third appraisal on the Beta discovery (Suncor) came up dry.

Netherlands, Denmark

There have been five new well spuds (four exploration, one appraisal) in the Dutch sector to date in 2015. Exploration wells K06-12 and P18-07 were successful. Well L10-38 was a technical failure and the operator is drilling a sidetrack, while the results of Well F12-05 are not yet available. Well F17-13, the sole appraisal well, was also a technical failure.

There have been two well spuds (one exploration, one appraisal) in Denmark during 2015. The Vendsyssel-1 exploration well began drilling in early May. Subsequent to the successful Xana-1X exploration well, spud in 2014, the Noble Sam Turner drillship has begun operations on the Jude-1 appraisal well for Maersk Oil (Fig. 2c).

Northwest Europe trend

Activity so far in 2015 points to sustained drilling in Norway and the Netherlands relative to recent years, but shows a continuing decline for the UK and Danish sectors.

The trend of declining exploration and appraisal activity in the UK has been compounded by the recent drop in oil price, however, there are several additional factors contributing to the slowdown.

Fig. 1a shows the record-high number of UK continental shelf exploration and appraisal wells in 2007 (122) steadily diminishing toward 2014 (37), a 55% reduction. This is in sharp contrast to the situation in Norway where exploration and appraisal drilling has increased markedly since 2005 to 56 wells in 2014.

Norway's 78% tax break is a primary factor for these high exploration rates.

In addition, the measured approach by which the Norwegian government releases acreage is instrumental in encouraging companies to properly evaluate and explore available regions.

Despite the relative maturity of the Rotliegendes play in the Dutch sector, exploration and appraisal activity has remained consistent, albeit low, since 2004.

Another factor limiting exploration and appraisal drilling in the UK North Sea is the relatively high $50-60 million/well cost.

Lower rig rates, however, are providing some relief for northwestern Europe explorers. Coupled with tax and potential exploration incentives in the UK sector, the lower rates may see an uptick in activity over time.

The author
Matthias Sasso ([email protected]) is technical analyst at Hannon Westwood, Aberdeen. He holds a BSc Honors in geology and petroleum geology from University of Aberdeen. He is a member of the Petroleum Exploration Society of Great Britain.