Building on a record high set in 2011, upstream oil & gas spending in the UK will continue at robust levels in 2012 and beyond, according to research consulting company Wood Mackenzie. In the firm’s annual analysis of the previous year’s UK upstream spending and outlook for the coming months, Wood Mackenzie said that a sustained high oil price will spur oil companies and investors to push ahead with projects in 2012, with spending to be on par with the record £7.5 billion in UK investment last year.
About £2 billion will be spent in developing offshore fields in the West of Shetland area this year, the firm said.
The UK upstream industry continued to gather steam in 2011 despite an increase in government taxes and fees that ‘highlighted the instability of the UK fiscal regime,’ the company said in a release.
Analysts based their positive outlook in part on results from the UK’s 26th licensing round, which began in 2010.
‘The success of the 26th licensing round was cemented by the second phase of awards at the end of 2011,’ said Lindsay Wexelstein, lead analyst for Wood Mackenzie’s UK upstream research team. ‘With an additional 46 licences offered, the round will surpass recent licensing rounds confirming the increasing appetite for UK exploration acreage.’
Exploration and appraisal drilling in the region was down in 2011 compared to previous years, the firm said, ‘reflecting a shift in focus for most of the North American companies, which are either progressing development projects in the UK or pursuing opportunities elsewhere around the globe’. Other companies have also shifted activity from UK exploration and appraisal to developing assets, although the downturn is not due to a lack of prospects in the UK, Wexelstein said.
‘Companies have turned their attention away from E&A activity to developing fields for the time being as the stable, high oil price environment has offered them the opportunity to focus on progressing development projects to turn reserves into revenue.
Given the lead times associated with E&A activity, the Supplementary Charge increase in March had little impact on the overall drop in activity – only 47 wells spudded in 2011. Although we expect E&A drilling to rise slightly in 2012 we think the focus in the near term for many companies is going to remain on development projects.’
The review also concluded that about $4 billion in assets were traded in 2011, marking the most active UK deal market since 2005. Two deals accounted for 40% of the total: Apache’s acquisition of assets, including Beryl, from ExxonMobil, and Perenco’s acquisition of Wytch Farm from BP.
Wood Mackenzie said its analysts expect the 27th UK offshore licensing round to continue to draw strong interest when it gets back under way early this year. RM
Subscribe
