Exploratory and appraisal drilling off Northwest Europe is languishing, largely because of tax policy changes.
Last year's U.K. government decision to remove exploratory and appraisal (E&A) drilling tax benefits has hit first quarter offshore activity levels.
In the same period Norway's offshore operators made no commercial hydrocarbons discoveries, while tax levels have killed drilling off Netherlands.
Those are the findings of Arthur Andersen Petroleum Services (AAPS), London, in a study of North Sea drilling during first quarter 1994.
The analyst reported only 27 E&A well spuds in Northwest European waters. The U.K. level was the lowest since 1987.
U.K. DRILLING
The analyst said U.K. petroleum tax reforms did not hit activity levels when they were first applied in March 1993 (OGJ, Mar. 29, 1993, p. 33). They were said to be having greater effect as the end of transitional tax relief looms in December.
"Further interest in the U.K. continental shelf is guaranteed through satellite developments," said AAPS, "although we do not see the exploration pace reviving from its current modest levels unless interest in the West of Shetland basin substantially increases."
Nineteen E&A wells were spudded in the first quarter, AAPS said, a marked decline from first quarter 1993 when 36 wells were spudded. Drilling levels are forecast to fall further because of uncertain oil prices.
"A certain amount of activity will be guaranteed by license commitments, although rank exploration work is most likely to be deferred and drilled when a more favorable oil price materializes."
However, 16 of the 19 new U.K. spuds were exploratory wells. AAPS said this surprisingly equaled the number of wildcats drilled in first quarter 1993.
"It is in appraisal drilling that U.K. continental shelf figures have tumbled, falling by a massive 85%. We believe that this can be explained by a recent wave of exploration wells probing around existing/maturing fields to prove further reserves in satellite structures."
AAPS said these wells cannot be classed as exploratory wells because they don't target separate structures. However, they represent comparatively low risk drilling and can be developed from existing facilities.
"This new trend highlights the evolution of North Sea exploration," AAPS said, "as operators are adapting to changing economic conditions."
Only one of the U.K. first quarter wells was reported to be a success: the British Gas plc Block 110/7a-8 well in the Irish Sea. AAPS believes this probed a southwestern extension of Barrow prospect.
NORWAY
AAPS said no commercial discoveries were reported off Norway during first quarter 1994. Government action was recommended.
"Norwegian Petroleum Directorate should open more of the Norwegian shelf to present companies with new exploration acreage," AAPS said. "Changes to the offshore taxing system are also required to make exploration more attractive."
Future exploration off Norway was said to depend on how operators greet government proposals on new acreage and how changes to fiscal policy are implemented and received.
"This move may attract other players into the sector, as well as stimulate new exploration programs with current Norwegian operators to replenish the sector's rapidly depleting reserves base," AAPS said.
"It is also hoped that the momentum of interest will continue to build in the Haltenbanken, Nordland, and Troms areas, in addition to Norwegian Sea drilling."
AAPS said three of the first quarter wells spudded off Norway still were drilling ahead. Saga Petroleum AS had sidetracked its Block 34/7-23 well, which AAPS assumed indicates discovery of an encouraging hydrocarbon bearing structure.
Only one appraisal well was drilled off Norway in the first quarter. Norsk Fina AS drilled its 24/9-6 well to delineate an "encouraging find," but oil shows were not tested and the prospect remains classified as noncommercial.
NETHERLANDS
AAPS said Netherlands E&A drilling is at the mercy of the current tax regime. Without a relaxation of tax policy, the Dutch offshore sector is deemed unlikely to generate significant interest soon.
One wildcat was spudded in the Dutch sector in the first quarter, by Nederlandse Aardolie Maatschappij By (NAM). AAPS suspected the L/910 well discovered gas in a Rotliegendes play similar to an earlier find on the block.
"New tax proposals have been delayed from last year and are unlikely to be put to the country's government until the national election is over in May," said AAPS.
"With the exception of a possible exploration well by NAM, we next expect Placid International Oil Ltd. to drill wildcat K/9-7 midyear. Clyde Petroleum Exploratie BV may also enter the drilling frame with a third quarter spud in Block M/4."
OTHER AREAS
Ireland was forecast to dominate activity among Northwest Europe's other offshore regions. This is because of a recent exploration licensing round covering the Erris and Slyne troughs off western Ireland and a further frontier round for exploration of the Porcupine basin.
Danish E&A activity was said to be sporadic, with main operator A.P. Moller AS concentrating on long term horizontal production work in existing fields.
"The German sector will see no exploration or appraisal in the immediate future, although the acquisition of more seismic data may prompt some exploration activity, by BEB Erdgas & Erdol GmbH from 1996 onwards," AAPS said.
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