The last few months have been characterised by analysis of the health of the UK's North Sea oil and gas industry, with most commentators agreeing that some fresh thinking is required in order to maximise its potential.  Notably, Sir Ian Wood's interim review of the industry sets out a compelling case for renewed focus on the UK Continental Shelf (UKCS).

Each quarter, our Petroleum Services Group (PSG) issues an update on oil and gas activity across North West Europe.  This examines different aspects of the landscape, including drilling, licensing, deals and other corporate activity across the region.

Each January, however, we take a look back over the full year. The report for 2013 has produced some interesting findings and for the purposes of this blog we're looking specifically at the UKCS.

Overall, the report found that:

  • The number of fields starting production rose to the highest level for five years;
  • Following a record  27th licensing round, DECC offered 219 awards;
  • There was a noticeable drop in exploration and appraisal drilling.

Clearly the sector remains in good shape, particularly regarding the number of fields starting production. Over the course of 2013, there were 13 fields brought on-stream, this number is 44 per cent higher than 2012 and the highest figure since 2008 when 16 fields started producing oil and gas, as operators focused on development activity.

Of the fields that started production last year, 84 per cent were eligible for tax allowances. This trend indicates the fact that existing government incentives are helping to stimulate field developments.

Illustrating this point further, it was reported, a couple of weeks ago, that Chevron had plans to start work on the Alder Field, which was discovered in the 1970s. This was also underlined by the fact that many of the fields starting production in 2013 were first discovered in the 1990s.

Another positive for the year was the number of offers made, following record applications in the 27th licensing round. In November 2013, the Department of Energy and Climate Change (DECC) confirmed that 219 awards were offered. This is a really positive sign of the continued interest in the UK's North Sea.

However it's hard to ignore the drop in exploration and drilling activity.  Last year saw a decrease of 28%, from 65 wells in 2012 to 47 in 2013 and this decline is demonstrative of what we've been seeing over the last five years, with only 2012 bucking this trend.  Encouraging exploration and appraisal activity is a critical part of securing longer-term production and our report highlights the requirement for further incentives to stimulate North Sea exploration and appraisal drilling.

This was alluded to in Sir Ian Wood's interim report from 2013 – the UKCS Maximising Recovery Review – which made a number of recommendations on how to ensure continued investment in the area. The full report is expected this month.

This is undoubtedly an interesting time for the UK's North Sea. More than ever, operators seem to be at a crossroads in their attitude towards it. A number of companies are announcing significant levels of investment in the UKCS, while others are reassessing their involvement.  In recent months we've seen some key players in the UK sector publicly announce or taking steps that seem to indicate that the North Sea is no longer a core focus for investment within their global portfolios.

What is unequivocal, however, particularly in light of our most recent report, is the need for measures to be taken that will ensure the longevity of and continued investment in the North Sea.

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