ECONOMIC REPORT 2013
30
Furthermore, the period 2009 to 2012 saw a
decoupling of the relationship between the
oil price and the number of exploration wells
drilled. During this period, the number of
wells drilled was consistently below average,
despite a generally high oil price. It is evident
that exploration drilling is responsive to
both oil price and fiscal shocks. Figure 22
shows that there was almost no time lag
between the sudden increases in tax rates of
2002, 2006 and 2011 and the fall in drilling
figures; exploration capital is very mobile
and so can be quickly moved to other parts
of the world.
Encouragingly,
surveys
conducted
by
Oil & Gas UK indicate a positive outlook for
2013 to 2015, with operators forecasting a
potential of 37 exploration wells to be drilled in
2013. Despite a tightening rig market, roughly
85 per cent of exploration wells and 100 per
cent of appraisal wells to be drilled this year
have secured firm rig slots, providing additional
confidence in the forecast. Exploration activity
is expected to peak in 2014, with 53 wells
forecast to be drilled. Even if 80 per cent of
these are drilled, 2014 would see the highest
rate of exploration since 2008.
b) Exploration and Appraisal Expenditure
E&A expenditure typically corresponds to the
number of wells drilled, but is also directly
linked to the rise and fall of the international
drilling rig market (see figure 24 opposite).
In 2009 and 2010, a similar number of wells
were drilled to 2006, but the amount spent was
nearly double, demonstrating an escalation
in costs. Then, in 2011, the number of wells
drilled decreased, despite a further increase
in expenditure. The rise in expenditure in
2012, though, was mainly due to an increase
in exploration drilling compared with 2011.
It is anticipated that there will be a further
increase in expenditure in 2014 to nearly three
times as much as was spent in 2011.
Figure 22: Relationship between Exploration Drilling
and the Oil Price
Figure 23: Forecast of Exploration and Appraisal Drilling
Source: DECC, Oil & Gas UK
Source: Oil & Gas UK, Wood Mackenzie, EIA
0
20
40
60
80
100
120
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Total Exploration Wells Drilled/Oil Pri
c
e ($/bbl)
Total Exploration Wells
Oil Price (2012 Money)
Tax Increase
SCT Introduced
Tax Increase
Tax Increase
Small Field
Allowance
Increased
Financial Crisis -
Decoupling of the
Relationshipbetween
Oil Price and Drilling
Small Field
Allowance
Introduced
Source:Oil&GasUK,WoodMackenzie,EIA
