Platts, Jan 20, 2011
Investment in the UK's upstream oil and gas industry is set to nearly double in 2011, seen rising to GBP7.7 billion ($12.3 billion) from GBP4.4 billion the year before, according to analysts Wood Mackenzie.
The analysts said Wednesday that "improved economic confidence and the expectation of a stable, high oil price will lead to a rise in exploration and appraisal drilling activity in the UK."
The Brent crude oil price has recently approached $100/barrel levels, up from $75/b this time last year, while an annual UK gas contract is around 58 pence/therm ($9.33/MMBtu), up from 43 p/th this time last year, and compared with current US gas prices around $4.50/MMBtu.
The company said that in 2010 the upstream industry had continued a slow recovery that started in late 2009.
Lindsay Wexelstein, lead analyst for the UK upstream research team, said: "Looking at the last year, industry confidence was reflected by the success of the 26th Licensing Round, an increase in deal activity and a rise in the number of projects put forward for approval."
"The returning confidence was also evident in exploration, where drilling was up by 28% with 37 wells spudded, but it was still a long way short of the 56 wells spudded in 2008," she said.
"For 2011, we expect exploration and appraisal drilling to increase as companies' more positive economic outlooks become reflected in their drilling schedules. The UK remains an attractive province and material discoveries are still being made."
The volume of reserves discovered in 2010 was only 233 million barrels oil equivalent, however, down by 67 million boe from 2009.
There remained interest in acquiring growth assets in the North Sea, but there was a continued slowdown in mature asset trading, Wood Mac said.
Over $7.3 billion of assets were traded in the most active UK deal market since 2006, Wood Mac said. Korea National Oil Corp.'s takeover of Dana Petroleum accounted for almost half of the total value exchanged.
"We do not expect a significant shift in the asset market in 2011, meaning deal activity levels are likely to remain at similar volumes to 2010," Wexelstein said.
(Wood Mackenzie has been producing its annual review of the UK upstream service for over 30 years. -- D.R.)