Outlook for the UKCS in 2005

Drilling Activity

Whilst the total number of new development wells continued a long term decline in 2004, there are signs of an upturn in 2005 with a significant increase in rig activity. Drilling expenditure has risen 18% over the last two years to £2.5 billion per annum this year. Whilst rig rates have risen, there is also an increasing use of more expensive mobile drilling rigs rather than platform based rigs. Enhanced technology including extended reach wells and multilateral wells are also improving recovery efficiency, whilst new oil and gas fields are also getting smaller in size. Together these trends are reducing the number of wells required per new field development.

Figure 31: UKCS Drilling Activity 1993 - 2004

The number of exploration and appraisal (E&A) wells, including side tracks, rose by 40% to 63 in 2004, as shown in figure 31. This was the highest level since 1998 and the trend is projected to continue to rise by 10% or more this year.

Figure 32: UKCS Exploration and Appraisal

This increase in E&A activity is also reflected in the turn around in North Sea rig market over the last twelve months. Rig utilisation averaged at 88% for jack-ups and 66% for semi-submersibles in 2004 and has continued to rise this year.

Figure 33: UKCS Rig Utilisation 2002 - 2004

In the first quarter of 2005, 82% of drilling rigs located in the North Sea were contracted to an operator. 75% of semi-submersible rigs were booked, and of jack-up rigs an even higher 91% were under contract. These high utilisation rates look set to continue; even in April nearly 70% of rigs were already under contract for the fourth quarter of 2005. While this activity is encouraging, lack of rig availability may also act to constrain planned future exploration and appraisal activity.

Figure 34: UKCS Rig Activity in 2005