Mixed drilling picture across North Sea

Offshore staff

LONDON – Drilling activity is holding up well across most of offshore northwestern Europe except the UK, according to Deloitte’s review for 2Q 2011.

During this period, 11 exploration and appraisal wells were drilled on the Norwegian continental shelf (NCS). Although four fewer than in the corresponding period in 2010, the total was still 10% above the second-quarter average for the past decade, the survey points out.

Of the 11 wells, six were wildcats and the remainder appraisals. Eight of the wells were in the North Sea, one in the Norwegian Sea, and two in the Barents Sea.

The outlook for Norway remains positive into 2012, Deloitte predicts. Drilling reached record levels toward the end of the last decade and stayed high in 2011, driven in part by the Norwegian government’s tax incentives and the success of Norway’s Awards in Pre-defined Areas (APA) licensing rounds.

Offshore the Netherlands, there were four exploration and appraisal well spuds during 2Q 2011, on a par with the corresponding period last year. Drilling levels have remained stable, with seven exploration and appraisal wells spudded in the first half of the year, against six for this period in 2010.

In the Danish North Sea, two exploratory wells were spudded in 2Q 2011, up from zero in the first quarter. Both wells targeted the same prospect and the second was a re-spud of the first.

As for the UK, 11 exploration and appraisal wells were spud during this year’s second quarter, 52% lower than the total for 2Q 2010, and the lowest mid-year tally since 2002. To date this year there have been 20 exploration and appraisal well starts compared with 35 over the first half of last year.

Deloitte says this low level is not what would normally be expected during times of high oil prices.

In March, the UK Government imposed an additional levy on oil and gas companies via an increase in Supplementary Corporation Tax (SCT). This decision was unexpected and taken without consulting the industry. It reinforced the view that the UK operates an unstable fiscal regime, Deloitte says.

Although the government recently tried to mitigate the damage by increasing the Ring Fence Expenditure Supplement from 6% to 10%, that too represents another change to the fiscal regime, which will not alleviate concerns regarding future stability.

However, in view of the lead time associated with the planning and drilling of exploration and appraisal wells, the recent drop-off in activity cannot necessarily be attributed to the tax changes. More likely, Deloitte suggests, the effects of these changes will be seen over the next six to 18 months.

07/15/2011



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