North Sea drilling cut back - but oil exploration on the increase in 2010

Drilling in UK waters fell by 9 per cent during 2010 but exploration activity increased, according to a major industry report published today.

Deloitte's North West Europe Review reveals that 71 exploration and appraisal wells were sunk in the UK Continental Shelf (UKCS) last year, compared to 77 in 2009. The dip is attributed to a return to normality after the record oil prices of 2008.

The research also notes that independent oil and gas companies turned to "farm-ins" rather than deals last year as a less risky way of expanding their portfolios.

Graham Hollis, energy partner with Deloitte in Aberdeen, said economic uncertainty probably led to a more cautious approach to drilling schedules for 2010.

"The drop from 77 to 71 wells is fairly minimal and represents a return to the fairly consistent levels seen throughout much of the last decade," said Hollis.

"Moreover these figures are in line with what we would expect to see in a more mature region such as the UKCS.

"The 2010 figures show an increase in exploration drilling compared to 2009 and this might be a trend in 2011 if the higher oil price continues, as more technically difficult projects become more viable."

The report revealed a decrease of more than 60 per cent in the number of international deals carried out in 2010, compared to 2009. However, this was offset by the number of farm-ins increasing from 16 in 2009 to 58 in 2010. Farm-ins allow a company, not at present a licensee on a particular licensed area, to acquire an interest from one of the existing licence holders.

The number of farm-ins announced or completed during 2010 was the highest number recorded in the past ten years, as the oil price recovered to more than $80 a barrel.

Graham Sadler, managing director of Deloitte's Petroleum Services Group, said: "The increased farm-in activity is particularly significant and has been dominated by the independent oil and gas companies in 2010, as they seek to fund their work programmes and minimise their financial exposure.

"At the same time, it is likely that these farm-ins have presented, to those companies looking to increase the equity they hold in potential reserves, a less risky and less costly method of expanding their portfolios.

Sadler predicted that the strategy may well continue throughout this year.

Yesterday, Faroe Petroleum announced it was acquiring a 28 per cent interest in the undeveloped Perth oil field from Nexen Petroleum UK.

The Perth field, some 185km north-east of Aberdeen, has remained undeveloped since its discovery in 1983.Tests showed crude from the field's Claymore sands flowed at rates between 1,000 and 6,000 barrels a day.

Faroe chief executive Graham Stewart said Perth had the makings of becoming an important new field development in the near term.