Fall In Drilling For New Fields

Drilling for new oil fields in UK waters has fallen by a fifth while exploration in other North Sea countries remains buoyant, according to a petroleum analyst.

The UK Government must say what fiscal incentives it will provide to encourage exploration in the UK Continental Shelf after drilling fell by 20% from 50 new wells drilled in 2013 to 40 last year, Deloitte Petroleum Services said in its 2014 end of year review.

This contrasts with Norway which remains relatively buoyant'' with exploration falling just 3% from 59 wells to 57, and the Netherlands where exploration has doubled from 10 wells to 20.

Graham Sadler, managing director of Deloitte's Petroleum Services Group, said: Over the last 12 months, both industry and government have recognised the need for change on the UKCS.

We have started to see some positive steps taken in that direction, with the recommendations made in the Wood Review and tax changes announced in the Autumn Statement among them.

We continue to see steady but low levels of drilling and hope this will increase.

However, that will require industry dialogue with, and strong guidance from, the Oil and Gas Authority.

It will also need further clarity from Government over the fiscal incentives that will be made available to support exploration and appraisal activity.

To sustain its future, the North Sea's stakeholders will need to adapt to a lower oil price environment and reduce costs in order to get through this period of transition.''

There was also a reduction in the number of field start-ups in 2014, decreasing from 13 in 2013 to six this year.

There were fewer deals completed in the last 12 months, dropping from 63 in 2013 to 23 in 2014.

Derek Henderson, Deloitte's Aberdeen office senior partner, said: Last year saw a reduction in the number of deals taking place in the North Sea, despite a large number of assets being available on the market.

Price pressure and access to finance were issues for the most likely buyers - smaller companies with limited budgets - creating a price differential in the market and stalling deal activity.

While it is not the only consideration, it is likely that if the oil price remains low assets will become more affordable to some of the region's more cash-rich players who may be looking to invest in the UK basin.

As a result, we could see more transactions in 2015 as some businesses look to divest and focus on other areas. This could also bring about further consolidation among some of the players in the market. There are definitely firms on the lookout for assets and deals will be done if the price is right.''