Deloitte earlier this week issued a report in which it said only 47 exploration and appraisal wells were drilled on the UK Continental Shelf (UKCS) in 2013, compared with 65 in 2012
Malcolm Webb, chief executive of Oil & Gas UK, an organisation representing the UK offshore oil and gas industry, said that the report by Deloitte, together with latest figures from Wood Mackenzie’s annual review and data released by the Department of Energy (DECC), demonstrates the parlous state of exploration in the UK continental shelf (UKCS).
We must drill more
Webb said: “We are not drilling enough wells in UK offshore waters and those that we are drilling we are not finding enough oil and gas. Contrast this against the 41 per cent uplift in drilling activity on the Norwegian side of the shelf and its clear to see now is the time for concerted action by DECC, HM Treasury and the industry if we are to maximise economic recovery of our offshore oil and gas resources and sustain future production.
This worrying trend has been growing for some time. It started in 2011 with a 50 per cent drop in the number of exploration wells drilled, which has since failed to recover. Our members tell us that drilling rig availability and the ability of smaller companies to secure equity capital are major hurdles.
More cash, less wells paradox
“The paradox is that in 2013, the UK saw a record level of capital investment at over £13 billion. We now have a two speed North Sea. On the one hand we have seen tremendously strong development activity from a small number of large, highly robust projects plus a greater number of smaller ones only made commercial by targeted reductions in unsustainably high tax rates, ranging from 62 per cent to 81 per cent. Looking to the Deloitte figures, we can see the marginal nature of the projects remaining to be developed in the UKCS; 84 per cent of start-up fields and 88 per cent of the 26 projects approved during 2013 have been granted and qualify for field allowances.
Meanwhile, production from existing fields has fallen significantly and the total number of exploration wells has slumped. We are simply not putting enough reserves into the hopper for future development. Unless we do something about exploration now, we face a risk of a collapse in capital spend in a few years’ time and hence lower future production,” Webb added.
New regulator needed
“Sir Ian Wood sets out the right prescription in his interim report to the Secretary of State for Energy, Maximising Economic Recovery for the UK, published last November. He proposes a new and strongly resourced oil and gas regulator, working in cooperation with the Treasury and the industry towards the shared goal of maximising economic recovery of the substantial remaining UK oil and gas resource.
Oil & Gas UK looks forward to the imminent publication of Sir Ian’s final report and to HMT, DECC and the industry working together as a matter of urgency to implement its recommendations, including, crucially, this new tripartite approach. There are substantial volumes of oil and gas still to recover from the UK continental shelf but action must be taken now to avoid billions of barrels being left in the ground,” Webb concluded.