BIG oil and gas companies will increase exploration drilling in North Sea frontier areas such as West of Shetland this year amid an improvement in industry conditions and record mergers and acquisitions activity off the UK, experts have predicted.
Wood Mackenzie said the fall in drilling costs since the crude price started tumbling in 2014 will encourage giants to step up activity in relatively under-explored areas where some believe there are big finds to be made.
The Edinburgh-based oil and gas consultancy does not expect an increase in the overall depressed level of exploration activity in the North Sea. The number of wells is likely to be in line with the 50-year low of 15 recorded in 2016.
However, Wood Mackenzie said increased drilling off Shetland would be a notable feature of the modest recovery it predicted there would be in the North Sea this year, underpinned by an improving oil price.
Senior analyst Fiona Legate said: “There’s quite a bit of movement in that area which can be seen as promising.” She noted there had not been much drilling in frontier areas in recent years.
Big firms may also be encouraged to explore in mature provinces like the Central North Sea off eastern Scotland in order to maximise the chance of developing any finds before nearby production facilities and pipelines are taken out of service.
“The majors are having a last look ahead of mature and costly infrastructure timing out,” said Ms Legate.
She reckons Statoil, Total and Nexen among others may drill wells this year.
Wood Mackenzie has forecast total decommissioning spending will increase 60 per cent this year to £1.8 billion, from £1.1bn in 2016.
The consultancy’s research has underlined how important it is for firms to make discoveries in the North Sea, in order to replenish the stock of the kind of development projects. These will create much needed work for the oil services sector.
Wood Mackenzie reckons development spending will fall 30 per cent in the North Sea this year, to around £6bn, as big projects off Shetland are completed and some giants shift investment overseas.
The firm expects mergers and acquisitions deals worth $3.5 billion (£2.9bn) this year, the highest level recorded since 2012, during the boom that lasted until supplies ran ahead of demand. Deals worth around $2bn were struck last year.
Majors such as Royal Dutch Shell are likely to sell packages of fields and some energy firms may offload assets. Private equity players are expected to remain big buyers, following the fall in prices seen in recent years.
Ms Legate said it could be good to see ownership of some fields transferred to new owners that may be more likely to invest in them than existing holders.
The cost cutting seen in the North Sea in recent years is likely to encourage firms to develop fields, with three projects likely to get the green light against one last year.
Wood Mackenzie reckons the 40 per cent fall in operating costs since 2014, to £16.50 per barrel, has helped some firms survive.
Sweeping tax cuts have boosted the industry. However, operating conditions remain difficult.
Specialists at accountancy firms PwC and Deloitte have said more North Sea firms may go bust this year while job cuting will continue.
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