UK Drilling Activity Down But Exploration is Rising

Offshore drilling in the UK Continental Shelf (UKCS) dipped 20% Q3 2010 on an annualised basis, according to the latest oil and gas industry figures obtained from Deloitte.

It’s Petroleum Services Group (PSG), revealed in a report published on Friday that a total of 24 exploration and appraisal wells were spudded in the UK sector between July 1 and September 30, compared with 30 exploration and appraisal wells during the corresponding period last year.

Concurrently, PSG also said a 4% quarter over quarter rise was noted in the number of wells spudded in the UKCS in the third quarter of this year, attributed to higher levels of exploration drilling in the UKCS, up 32% for the first three quarters of 2010 when compared to the same period of 2009.

Overall, international deal activity saw a marked increase during the third quarter of 2010, following a period of no activity at all in the previous quarter. Most notable were the corporate acquisitions announced following KNOC’s acquisition of Dana and EnQuest’s decision to buy Stratic Energy.

However, corporate level activity within the UK has decreased since the second quarter of 2010 with only one corporate asset sale announced compared to three announcements and one completion in the previous quarter.

Graham Sadler, managing director of Deloitte’s PSG, commented in a statement that seeing deal activity in the UK decreasing for a second consecutive quarter was not a major surprise.

“There is evidence of a shift in company strategy as organisations are opting for less costly and less risky policies as they look to adjust their portfolios. This is reflected in the fact that the number of farm-ins announced has almost tripled this quarter to 11, in comparison with just four announcements during the second quarter. Until more confidence in the recovery of the market becomes further evident, this may be a trend that continues in the future,” Sadler said.

Elsewhere in the UKCS, Norway saw seven exploration and appraisals wells spudded, which represents a 56% decrease when compared to the number of wells drilled in the second quarter of this year.

Netherlands, Denmark and Ireland also reported low levels of drilling activity according to the Deloitte report while the four wells spudded in the Cairn Energy drilling programme in Greenland marked the first activity in the region for a decade.

On the pricing front, despite the overall decreased activity, the price of Brent Crude oil has remained stable throughout the whole of the third quarter of 2010, achieving a quarterly average of US$76.47 per barrel.

Carrying on with the theme, I met several analysts here at OPEC who think Brent appears to be winning the battle of the indices. The sentiment is gaining traction. David Peniket, President and Chief Operating Officer of Intercontinental Exchange (ICE) Futures Europe remarked in May that WTI is an important US benchmark but that it does not reflect the fundamentals of the global oil market in the way that Brent reflects them.

© Gaurav Sharma 2010. Photo: Andrew Rig-North Sea © BP