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A rising trend of new upstream and energy projects launched across the globe in the early months of this year has been flagged up by the U.K.’s leading energy trade association as a key indicator of the industry’s returning health.
“Encouraging signs of growth” have emerged in first quarter 2012, according to the London-based Energy Industries Council (EIC)’s quarterly report and industry barometer “EIC Monitor.”
And the EIC’s optimism globally is backed up by analyst and consultant Deloitte, which in a separate quarterly report of its own focused on the U.K. and European offshore sector has forecast “a positive year ahead,” despite exploration and appraisal drilling activity in first quarter 2012 being two thirds lower than four years ago.
The EIC’s quarterly report tracks new projects across the global energy supply industry, not only in the oil and gas upstream sector but also the midstream and downstream sectors as well as renewables, nuclear and conventional power markets. The overall number of projects in the first quarter increased across all sectors, and overall is up 16% compared to fourth quarter 2011, the organization said.
Tracking more than 9,200 active and future projects in the global energy industry, the EIC said there were 471 new projects across all sectors, with an estimated total investment value of U.S. $303 billion. This is up on the figure of 407 in fourth quarter 2011 (investment totalling $262 billion) and 544 new projects in first quarter 2011 (investment totalling $385 billion).
New Projects Rise 37% In Global Upstream Sector
Although the global upstream sector saw a slight decrease in the potential investment value of newly proposed projects in the quarter (down from $35 billion in fourth quarter 2011 to $32 billion in this quarter) the number of new potential projects revealed in first quarter 2012 rose 37%.
In nearly all the cases, newly proposed projects must first undergo various planning and consent approvals that can take several years, according to the report, which also noted early stage proposals do not necessarily have financing agreed and in place. “Thus there will always be a proportion of projects that do not gain consent and/or finance,” the EIC said.
In the upstream sector there have been 70 new projects outlined totalling $32.4 billion in first quarter 2012, compared to 51 new projects totalling $34.6 billion revealed in fourth quarter 2011. In first quarter 2011 there were 79 new projects totalling $57.3 billion of potential investment unveiled.
Key international hot spots in the first quarter were Russia, Canada, the U.S. and Brazil, together representing 56% of the total potential investment value in the upstream sector. The largest project is the proposed $3.5 billion Hebron-Ben Nevis-West Ben Nevis oil fields, Phase II development offshore Canada in the Jeanne d’Arc Basin.
U.K. Drilling 66% Down Compared To 2008
Deloitte’s quarterly report on offshore drilling activity across North West (NW) Europe highlighted a marginal rise in the U.K. offshore sector during the first quarter compared to the equivalent period in 2011. But E&A activities are still 66% down on the first quarter of 2008 (the last spike in annual drilling activity), according to the analyst.
The report showed 11 wells were spudded on the U.K. Continental Shelf during the first three months of the year, an increase of 22% on first quarter 2011. However, the figures are down 15% compared to the final quarter of last year, as well as 42% lower when compared with the average number of wells spudded in the first quarter of the last five years.
Despite these figures, Deloitte’s analysts say the signs point to a more positive year ahead for the industry. “The difference in activity between the last three months of 2011 and first quarter of 2012 is not altogether surprising. The winter season restricts offshore activities and the number of commitment wells from the 25th and 26th licensing rounds is quite low. In addition, companies continue to be cautious in the face of an ongoing uncertain economic climate,” said Graham Sadler, managing director of Deloitte’s Petroleum Services Group.
“However, more recent figures for March indicate an increase in drilling into the spring with seven spuds in March compared to a total of four during both January and February. Furthermore, the tax relief measures announced by the government in March’s budget have been welcomed by the industry, and this may result in renewed confidence over the course of this year.
“Although some of the details will be determined through a consultation process in the coming months and more certainty around decommissioning liabilities should enable companies to recover cash flow at the time of decommissioning, which may result in more expendable cash to spend on exploration and appraisal.”
Sadler added that although it was too early to start making predictions, the increased fiscal stability and the high oil price “should lend themselves to an increase in drilling going forward.” This, in turn, could mark the start of a positive upward trend for the rest of this year, he said.
25 E&A Wells Drilled in NW Europe
Elsewhere in Europe the trend is mixed, with a decrease in activity in Norway and little change elsewhere. In first quarter 2012, a total of 25 E&A wells were drilled across NW Europe, representing a 4% increase compared to the same quarter in 2011 when 24 E&A wells were drilled. The majority of those drilled during the most recent quarter were located on the U.K. and Norwegian Continental Shelves.
Deloitte also pointed out that geological maturity varies across the region and basins. “Significant potential remains in the West of Shetlands, the Norwegian North Sea and the Barents Sea as demonstrated by a number of significant discoveries made during 2011,” the firm’s analysts said.
However constraints on rig availability across NW Europe continue to be an issue.
“This is a particular concern in areas such as West of Shetland, the Norwegian North Sea and North Atlantic where extreme metocean conditions require specific heavy duty drillships. Bad weather across the region has also delayed drilling activity as rigs have been unable to move off locations to meet deadlines.”
Deloitte also highlighted a fall in asset deals during the quarter, with a total of 37 recorded throughout NW Europe in the first quarter, down 18% compared to fourth quarter 2011. Of those, 60% were on the U.K. Continental Shelf with farm-ins and asset acquisitions remaining the most common type (40.5% each).