Wood Mackenzie noted drilling activity on the United Kingdom Continental Shelf is set to increase markedly this year after hitting record lows following the crude price plunge that took a heavy toll on the industry.
Declaring “exploration is back in the UK,” the oil and gas consultancy said as many as 15 wells could be drilled in the UK North Sea this year, compared with just eight in 2018.
“Siccar Point’s Blackrock and Lyon wells West of Shetland are the ones to watch. Both are high risk but have standalone potential,” added Edinburgh-based Wood Mackenzie.
The comments highlight the surging interest in the relatively under-explored West of Shetland area. This has been encouraged by the partial recovery in the crude price from late 2016.
The success enjoyed by the pioneering Hurricane Energy West of Shetland has also emboldened firms to risk big sums drilling in an area they may feel offers greater potential than parts of the UKCS that have seen more activity.
The Lancaster field discovered by Hurricane Energy is due to come onstream soon. The field is expected to help power a four per cent increase in UK North Sea output, which more than halved between 2000 and 2014.
Wood Mackenzie noted seven UK fields are expected to start up this year including the giant Mariner development East of Shetland and the Culzean field off Aberdeen.
Analysts at the firm reckon increased confidence among oil and gas firms will encourage them to take Final Investment Decisions (FIDs) to approve a range of other new developments.
“This year will see the North Sea recovery consolidate,” said Wood Mackenzie, adding: “We expect another bumper year for North Sea FIDs.”
Wood Mackenzie said 12 UK North Sea project approvals are “in sight”, with $7bn investment in prospect this year.
Some 13 UK North Sea projects won approval last year. This was more than were approved in total in the three preceding years, during which firms slashed investment in the North Sea in response to the oil price fall.
Wood Mackenzie noted majors such as BP and Shell are investing in their slimmed down portfolios. New players who bought North Sea assets in the belief the downturn created opportunities are also stoking investment.
The cost of North Sea assets and services such as drilling support fell during the downturn, posing huge challenges for firms in the supply chain.
Wood Mackenzie said there is a pool of potential buyers that are eager to grow in the North Sea.
Private equity firms have made billions available to support ambitious expansion programmes launched by the likes of Siccar Point, Chrysaor and Neptune Energy.
US majors Chevron and ConocoPhillips are cutting exposure to the North Sea to free up funds to invest in areas such as the shale fields of Texas.
The bullish forecast from Wood Mackenzie will probably be welcomed by firms in the North Sea supply chain, which remains under pressure. It was accompanied by the prediction that costs will begin to creep up.
However, Wood Mackenzie cautioned: “Against the backdrop of Brexit and the genuine possibility of a global recession, there could be uncertainty ahead.” It said companies with the lowest-cost projects and most options will be the winners this year.
The crude price has fallen from a four-year high of $85 per barrel in October to around $58/bbl, with booming production in the US offsetting output curbs agreed by Opec members to support the market. Brent crude fell from $115/bbl in June 2014 to less than $30/bbl early in 2016.