Activity Survey 2015

It also appears that operators prioritised the drilling of development wells rather than E&A activity last year, reflecting the drive to monetise opportunities at a time of high oil prices. As oil prices fall, E&A becomes even less attractive for many companies as there is less free cash, further exacerbating the problem.

1

Figure 14: Constraints on Exploration and Appraisal Drilling in 2014

2

Regulatory Requirements

Greatly Affected Somewhat Affected Slightly Affected

Seismic Processing or Vessel Capacity

3

Resource Availability

Contractual Complexity

Awaiting Further Technical Evaluation

4

Fiscal Environment

Rig Rates

5

Cost Escalation

Rig Availability

Slippage/Re-ordering of Wells

6

Lack of Funding

0

2

4

6

8

10

12

Number of Wells

Source: Oil & Gas UK

7

Exploration and Appraisal Activity by Company and Region

8

The survey has examined companies that have chosen to operate E&A wells on the UKCS in recent years, considering them in four categories: majors, large companies, small/medium companies and utilities.

Of the 32 E&A wells drilled during 2014, 12 were drilled by large companies, nine by utility companies, six by the majors and five by small to medium sized companies. Whilst this suggests that the whole of the exploration community is engaged in E&A activity on the UKCS, it masks some important trends. Taking a broader perspective, drilling activity by smaller companies has declined over the last five years and a greater proportion of wells have been drilled by larger companies. In part, this is due to smaller companies struggling to raise capital, as access to finance has become more constrained following the financial crisis in 2009, and due to general perceptions of the UKCS’ competitiveness. Meanwhile, larger companies that have been less capitally constrained (until now at least) have chosen to target some of the more technically challenging opportunities on the UKCS, such as deepwater, heavy oil and ultra-HPHT targets that are beyond the commercial reach of smaller investors. Smaller companies often seek to take a commercial interest in wells drilled by other, often larger, companies rather than drilling the well themselves as the main operator on a licence. However, difficulty in accessing finance by such companies is also proving to be a barrier to this business model, delaying the commercial consortium and slowing down well drilling.

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