North Sea

Drilling activity on the UK Continental Shelf (UKCS) improved by one-third in 2012, driven by a broader range of tax allowances announced by the British Government and sustained high oil prices, according to a new study.

The research study, compiled by Deloitte’s petroleum services group (PSG), examined drilling and licensing activity across north-west Europe in 2012.

PSG foresees potential growth of the sector in 2013, amid numerous key pointers, indicating positive prospects, coupled with the range of tax relief policies already introduced in 2012.

In March last year, the Chancellor declared a rise in the small field allowance and introduced a new allowance for large deep-water developments targeting areas west of Shetland.

The government also announced a new allowance for shallow water gas field developments in July 2012 and announced a brown-field allowance subsequently in September, with an objective to extend the lifespan of existing fields.

All these allowances were aimed at encouraging riskier high-cost projects and are similar to those introduced in 2009 for high pressure high temperature (HPHT) and heavy oil projects, the study revealed.

Under the 2012 budget, more than 90% of new field developments in the country obtained eligibility for tax relief.

The report shows that 65 exploration and appraisal wells were drilled on the UKCS in 2012. Last year, around 129 deals were announced across north-west Europe, of which 80 took place in the UK, a 30% rise on the country’s total deal figure in 2011.

"PSG foresees potential growth of the sector in 2013, amid numerous key pointers, indicating positive prospects."

Interest in field development also reached a ten-year high during the year, making it the fourth consecutive year depicting a steady growth in field development approvals.

The Department of Energy and Climate Change (DECC) approved 21 field development projects and sanctioned eight incremental projects, which also includes investment in older fields for redevelopment.

Around 29% of new wells were spud in the last quarter of 2012, while the lowest number of wells was drilled during the first quarter.

Deloitte PSG managing director Graham Sadler said the existing conditions have boosted confidence in investment on the UKCS.

"After several years of caution and uncertainty, we have a more positive environment, where a number of factors such as tax incentives, high oil price and appetite to invest have combined to make 2012 the most encouraging year for a long time," Sadler added.

Image: Nasa’s satellite image of North Sea. Photo courtesy of Southpark.