Oil & Gas UK Economic Report 2015

Development Drilling Figure 33 shows the number of development wells drilled over the last decade and provides a comparison against production over the same period. As expected, there is a strong positive correlation between the two, with the obvious conclusion that the drive to increase production will rely on a sustained rise in development drilling. Likewise, any further decline in development drilling will further depress the production outlook. Exploration and Appraisal Drilling One of the biggest challenges facing the sector is the progressive decline in E&A drilling over the last decade (see Figure 34 overleaf). Exploration drilling is now at its lowest since exploration on the UKCS began in 1964. Last year, just 13 exploration wells plus one sidetrack 16 were drilled and 14 appraisal wells plus four sidetracks. For an extractive industry, an active and successful exploration programme is a prerequisite. The fall-off in exploration means the UK is only replacing a fraction of the reserves it produces, diminishing the scale of the

sector and its ability to sustain investment in the near term and deliver new production over the longer term. Figure 34 overleaf shows that the rate of exploration drilling declined sharply in 2009, in part, at least, as a result of the financial crisis of 2008-09 and the oil price fall. Exploration activity then staged a brief recovery before falling back further as the tax rate increased in 2011. It has since averaged at 16 wells (including sidetracks) per year. Appraisal drilling has held up better, though a sharp decline was seen last year following reduced exploration activity. It is expected to remain low in 2015. Over the last two to three years, the rate of drilling appears to have hit a floor and the number of wells drilled on the UKCS thus far in 2015 has held up against the three-year average, despite the precipitous fall in oil prices witnessed over the last 12 months. It should be noted, however, that companies were already committed to drilling most of this year’s wells before the

1

2

3

4

5

Figure 33: Development Drilling Activity against the Production Profile

1,400

250

6

Development Wells Drilled

1,200

Production

200

7

1,000

150

800

8

600

100

400

Number of Wells Drilled

9

Total Production (Million boe)

50

200

0

0

10

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: DECC

16 All sidetracks referred to are geological sidetracks, which is when the target location changes but surface location stays the same.

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ECONOMIC REPORT 2015