Rig shortage cuts North Sea drilling to eight-year low

DRILLING activity in UK waters has fallen to its lowest level since 2003 due to a lack of oil rigs and the knock-on effects of the 2008-9 recession, according to a report published today.

The number of exploration wells sunk on the UK continental shelf (UKCS) fell by 34 per cent year-on-year in 2011, worse than the 12 per cent fall for north-west Europe as a whole.

Drilling projects can take several years to plan and so decisions taken following the financial crisis have only now trickled down, according to analysts at accountancy firm Deloitte, which compiled the report.

They warned the effects of Chancellor George Osborne’s surprise North Sea tax hike in last year’s Budget won’t be felt until the end of this year.

Health and safety concerns following the Gulf of Mexico explosion may also have played a role in lowering last year’s total, the firm said.

Graham Sadler, managing director of Deloitte’s petroleum services group, said: “The low activity on the UKCS is not what we would normally expect in a year when the average monthly Brent oil price has remained well above $100 per barrel.”

Smaller oil firms may also have had troubled getting funding for their wells, Sadler added.

Investment in UK waters continued though, “with a larger number of significant development projects granted approval”, Deloitte said.

That finding backed up a report issued last week by research firm Wood MacKenzie, which found investment reached £7.5 billion in 2011, a new record.

News of the downturn in UK drilling activity comes as Edinburgh-based explorer Cairn Energy yesterday revealed it may sell all of its remaining 22 per cent stake in its Indian subsidiary within the next two years.

Cairn will use cash from the sale, which will be voted on by shareholders on 30 January, to buy more production wells to boost its cash flow. Last year the firm sold a 40 per cent stake in Cairn India to miner Vedanta. Cairn also expects to receive permission from the Indian authorities to ramp up production at its Rajasthan oil fields.

Meanwhile, British explorers are celebrating after being awarded licences in Norwegian waters. Faroe, the Aberdeen-based driller, was granted seven permits and continued with its music-themed names for the prospects, christening one “Aerosmith” and another “Lola”.

Aberdeen-based Dana – which is owned by the Korea National Oil Corporation – won licences, along with Scottish Gas-owner Centrica, Premier and Valiant.

Also, Shell and Tullow Oil said they would team up to drill in the Atlantic Ocean.