British oil firms to spearhead North Sea recovery

Despite a slowdown due to adverse weather and the lack of rig availability, analysts are expecting a pick-up in North Sea oil activity in the next few months.

According to Deloitte's Petroleum Services Group (PSG), levels of exploration and appraisal drilling across north-west Europe decreased by 8% when compared to activity levels seen during the first quarter of 2012. Additionally, deal activity offshore the UK fell 17% to 19 deals compared to the first quarter of 2012.

Graham Sadler, managing director of PSG, confirmed the slower pace of activity during the period was not the consequence of a fading appetite from the UK Continental Shelf (UKCS) participants.

In an interview with the BBC, he said: "Deal volume may be down, but it is still relatively strong and the increasing proportion of farm-ins would suggest the need for smaller companies to seek funding partnerships for future drilling. Drilling rigs are also at a premium currently, with 96% rig utilisation for the first quarter of 2013, so there is a lot of activity.

"Most markets have seasonal changes and the UKCS is no different in that respect; from where we sit there is every reason to expect the North Sea to continue the growth it achieved last year as we continue into 2013."

Oil rig shortage

The main causes of the slowdown were adverse weather conditions during the winter months: lower levels usually pick up towards the summer, explained André Sharma, oil and gas analyst at PSG.

In addition, he said, constraints on rig availability across north-west Europe "continue to be an issue", delaying drilling activity.

"This is a particular concern in areas such as West of Shetland, Norwegian Sea, Barents Sea and North Atlantic where extreme metocean [meteorological and oceanographic] conditions and deep waters require specific heavy-duty drill ships," he added.

Despite the reported lower activity, investors should keep in mind that investments in the North Sea are at a 30-year high and rising.

Oil & Gas UK said companies looking for offshore energy invested £11.4 billion in 2012. The trade body predicted this would rise to £13 billion in 2013.

"Confidence still high because of government tax incentives," said Derek Henderson, senior partner at Deloitte, who anticipated an increase in drilling and deals throughout the rest of 2013. Indeed, in 2012, Chancellor George Osborne announced gas fields in shallow waters would be exempt from a 32% tax on the first £500 million of income, which Malcolm Webb, chief executive of Oil & Gas UK, said encouraged investment in "difficult projects".

UK oil firms to drive increase

Many UK-listed oil and gas companies are expected to be part of the pick-up wave.

Serica Energy is expecting its first gas in mid-2015 on the Columbus field, while Xcite Energy flowed 149,000 barrels of oil which were sold to a major refiner as part of a successful well test at its Bentley field in March.

BP in March announced an investment of more than $500 million (£326 million) in the Clair Field and a month later, Premier Oil announced exploration well 16/4-6S in the Norwegian North Sea had resulted in a potentially "significant oil discovery".

Separately, in spite of the slowdown, Antrim Energy's president and chief executive Stephen Greer said in February: "The pace of Antrim's activity in the UK North Sea continues to grow." The company also revealed its Causeway field was producing 4,500 barrels of oil per day, while a water injector was expected to increase production over the following months.

However, in a bid to "rationalise" its portfolio, Tullow Oil said in December 2012 it was pulling out of North Sea production.