Despite record levels of UKCS investment during 2013, the year proved to be disappointing both in terms of exploration and appraisal drilling activity and to a lesser extent the acquisition and divestments market.
UKCS Drilling Levels
32 exploration and appraisal wells were spudded on the UKCS in 2013, a 16% decrease on the 38 wells spudded in 2012. This downturn is a result of diminished exploration drilling with levels 30% lower than the previous year. Appraisal spud levels, however, remained constant.
Exploration activity in 2013 saw 14 wells spudded, one well re-spudded, eight side-tracks initiated and three wells re-entered. The Central North Sea (CNS) dominated, accounting for nine exploration spuds (64% of activity), the Southern North Sea (SNS) two wells (14% of activity), with a single exploration spud (7%) in each of the Northern North Sea (NNS), West of Shetland (WOS) and West of Britain (East Irish Sea Basin) (WOB) areas.
There were 18 appraisal well spuds and 10 side-tracks drilled. The CNS topped the table with seven wells (39% of spuds), four spuds West of Shetlands (22%), three in the SNS (17%) and two wells each in the NNS (11%) and WOB (11%) areas.
50 of the UK’s 438 fields (approximately 11.5%) saw drilling activity, with 68 development/production (D&P) wells spudded and 54 side-tracks initiated.
Most active were 18 fields in the CNS (30 spuds & 28 side-tracks), followed by 14 NNS fields (18 spuds & 12 side-tracks), 13 in the SNS (11 spuds & seven side-tracks), three WOS (five spuds & five side-tracks) and two fields (four spuds & two side-tracks) west of Britain.
In 2013, nearly 8000 days were spent on D&P, appraisal and exploration drilling based on activity sets which commenced during the year. Less than one third of these days were spent on E&A drilling. About 22% of the total time is attributed to platform-based drilling, almost exclusively on D&P wells.
Mobile units accounted for nearly 78% of drilling activity, with 60% of the total attributed to development/production drilling whilst the exploration and appraisal drilling categories each accounted for about 20% of the total. 38 mobile rigs (22 jack-ups, 15 semi-submersibles and one drill ship) were employed in 2013 drilling operations, averaging 163 days/rig.
The number of appraisal spuds in 2013 matched 2012, and compared favourably with overall annual appraisal levels since 1994 (excepting a most recent peak of 36 appraisal spuds in 2007); the lowest level since then being the 11 spuds recorded in 2003.
2013 was, however, a very weak year in terms of levels of exploration drilling despite a Brent crude price that averaged more than US$100/bbl. and ended the year on $112/bbl. On just three occasions in the UK’s drilling history have less than 14 exploration wells spudded in a single year.
In recent times 13 spuds were recorded in 2002 (the oil price was then about $30/bbl.) and in the infancy of exploration on the UKCS when, in 1964 - the year offshore drilling commenced in the UK sector - and 1965 respectively, one and 10 wells were spudded.
New rigs are due in North West European waters in 2014 which, it is anticipated, will aid a partial recovery in exploration drilling levels, although the malaise in UK exploration cannot be blamed solely on a shortage of drilling units as a number of other technical and commercial factors are also influential.
In 2013 the industry spent some $1.6 billion on E&A drilling split equally between exploration and appraisal activity.
Hannon Westwood believes that results for wells carried over from 2012 or spudded in 2013 would indicate a discovered resource of circa 350 mmboe of which around 200 mmboe can be attributed to 2013 spuds excluding the currently drilling Spinnaker well.
Hannon Westwood will issue a detailed analytical report - 2013 UKCS Drilling Results - during the first quarter of 2014 offering a deeper perspective on last year’s activity set, including discoveries, appraisal drilling and reserves found and progressed.
UKCS A & D activity
2013 UK offshore deal activity was lower than 2012 in terms of the number of transactions which totalled 55 across all categories, a decrease of 16% from 2012 when a combined total of 66 deals were recorded.
The 2013, deals comprised 9 corporate sales, 18 asset sales, and 28 farm-ins
However, although the total number of transactions between 2012 and 2013 decreased, by comparison the associated traded value fell by more than 40% to $4424 million.
In 2013 the highest value category was asset sales which, at $3342 million, was 30% down on the value recorded for similar transactions in 2012.
Asset sales in 2013 included a cross UK/Norway border acquisition by OMV which acquired Statoil’s Schiehallion field and Rosebank discovery along with other Norwegian interests for $2.65 billion. In addition, Dyas acquired interests from Cairn in the Mariner and Mariner West fields for $46 million.
Corporate sales during 2013 were more numerous than 2012, but of significantly lower value. The most notable included Ithaca’s acquisition of Valiant which included assets in the UK, Norway and the Faroes for $309 million and the Spike acquisition of Bridge Energy which included assets in the UK and Norway for $165 million.
The number of farm-ins in 2013 marginally increased, compared to those for 2012, and is calculated at circa $250 million.
Hannon Westwood considers that the level of A&D activity in 2013 shows an encouraging continued interest in the UKCS when compared with 2012, which was historically an exceptional year in terms of both number of transactions and the value traded.
Commenting on the 2013 results, Charles Westwood observed that exploration drilling levels remain disappointing and likely result from a combination of factors including smaller prospect size, lower gas prices, disparate ownership and high development / operating costs.
However, against a backdrop of ageing infrastructure and funding challenges, unless industry steps up exploration pace, there is the real prospect of less than optimal recovery of potential North Sea resources, which will be detrimental for business, tax receipts and employment.