UK drilling continues to fall, risking North Sea industry: lobby group

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London — Industry group Oil & Gas UK warned Tuesday of a continued drop in North Sea drilling needed to sustain output levels in the longer term.

In its annual Economic Report, OGUK said a 50% decline in drilling activity over the last five years was a cause for “real concern” about the industry’s ability to realize its potential.

It said the industry had initiated just four exploration wells in the first eight months of 2018 and the expected number for the whole year, at 10-12 wells, would be the lowest since 1965.

Development drilling has also declined, with 41 development wells drilled in the first half, down from 47 in the same period last year.

“Lower development drilling will result in a lower well stock, and hence lower production levels. This will occur as older wells are decommissioned at a greater rate than new ones are being drilled. Reduced drilling activity will impact the capabilities and resources available to support future drilling… as rigs are stacked and equipment redeployed to other basins with greater opportunities,” OGUK said.

The group noted bright spots in the form of stabilized production levels, reiterating that it expects a roughly 4% increase in total oil and gas output this year to 1.7 million-1.75 million b/d of oil equivalent, taking levels roughly 20% above 2014.

But it highlighted a continued “highly conservative” attitude among major upstream companies uncertain about oil demand and sustained higher oil prices.

“Companies remain focused on maintaining confidence, as evidenced through the maintenance of dividend payments throughout the downturn, demonstrations of sustained cost discipline, and the servicing of debt… Major Exploration & Production companies remain highly conservative. This… signals that industry does not yet have the confidence that increased commodity prices will be maintained in the long term.”