2014: Norway Waxes, the UK Wanes
Hannon Westwood report on 2014 drilling activity and results in Norway and the UK
In a year in which the oil price remained stable at circa $100 per barrel until the last quarter, activity levels in both the UK and Norwegian sectors have continued to show a distinct divergence, with Norway seeing consistently high activity levels that are simply not being replicated in the UK.
HW estimates that in 2014, UK fields produced approximately 600 million barrels of oil equivalent (mmboe), an increase from the c. 520 mmboe produced in 2013. Despite the vast majority of UK fields being in decline and production efficiency falling, a number of new large fields were brought on-stream including Jasmine, Juliet, Rochelle and Golden Eagle. In addition the British Government issued approval to restart production from the Rhum Field where as a result of sanctions against Iran the field had been shut-in.
In the UK a total of 25 Exploration and Appraisal (E&A) wells were spudded during 2014 which was a decline compared with the 32 spudded in 2013, along with an even sharper reduction in the number of completed deals, compared to the levels seen in 2013.
Five discoveries: Avalon, Marconi/Vorlich, Leman SW, Romeo and Cepheus, were made in 2014 amounting to a total estimated potentially recoverable resource of approximately 50 mmboe. Whilst this resource is seemingly low, four of these discoveries are considered commercial with only Romeo understood to be non-commercial. The UKCS therefore recorded an exploration success rate of 38%. This compares to the 57% achieved in 2013 when eight discoveries were made.
Similarly A&D activity was muted in what has been a prolific sector in recent years. In total 53 deals were conducted, compared with 56 deals in 2013 and 66 in 2012. However, the total estimated deal value was startlingly depressed at just $788 million*, a fall from $4.4 billion in 2013 and $7.6 billion in 2012.
In Norway the story was different, production levels in 2014 declined to 1.12 billion barrels of oil equivalent (bnboe), down from 1.35 bnboe produced in 2013. However, 2014 saw significantly higher levels of drilling activity than in the UK. By year-end 46 E&A wells had spudded in Norway, of which 36 were exploratory whilst 10 were classified as appraisal. To put this in context, since exploration and appraisal drilling began in the sixties, only four years have had higher E&A activity levels.
For Norway the North Sea was once again the most active area in terms of drilling with 25 E&A whilst the Norwegian Sea saw the lowest level of activity with eight wells spudded. Of the regions the Norwegian Sea was the most technically successful, with an average exploration success rate of 86% whilst the mature North Sea experienced the lowest exploration success of just 22%. In the Barents Sea, Statoil had a number of successes which helped to push the region toward a 64% technical success rate. In total 15 new discoveries were made in the year to which HW attributes an estimated 700 mmboe. Worthy of note are Lundin’s Alta structure which contains an estimated 270 mmboe and the VNG-operated Pil Discovery which contains an estimated 120 mmboe.
Similarly the deal market in Norway was active, with 36 deals concluded compared to 39 deals in 2013 and 21 deals during 2012. Major deals included: the acquisition of Marathon’s Norwegian subsidiary by Det norske for a total consideration of $2.7 billion; the acquisition of Statoil assets by Wintershall for $1.25 billion; and the acquisition of several of Total’s assets by PGNiG for $317 million. HW estimates that deal values for 2014 totalled approximately $4.1 billion*, compared to $3.8 billion in 2013 and $4.2 billion in 2012.
Looking ahead, little change is anticipated in the near term. Hannon Westwood expects approximately 50 E&A wells to spud in Norway during 2015, whilst, in the current oil price environment, the UK will see between 20 and 30 wells at best
2015 may be a pivotal year for the UKCS. Wood’s recommendations are now being implemented and Government and Industry are working together to encourage activity. Only time will tell if these adjustments will have the desired effect on activity levels but what can be said is that, without change, the remainder of the UK’s national hydrocarbon resource remains at risk.
For further details see the full report at www.hannonwestwood.com
*Deal values exclude the acquisition of RWE Dea by Mikhail Fridman’s LetterOne Group in March 2014 for $7.1 billion which includes assets in Norway, Denmark, Egypt, Germany and the UK for which no country level breakdown is provided. In addition the purchase of Talisman by Repsol for $8.3 billion is excluded for the same reason.