INTEREST in the West of Shetland area is surging among oil and gas firms with exploration well numbers set to reach the highest level since the crude price plunge started, experts have said.
Wood Mackenzie said all eyes are on West of Shetland, where the consultancy reckons drilling this year could pave the way for more bumper developments.
Oil and gas output is expected to reach an eight year high in the UK North Sea in 2018 helped by the start of production from the giant Clair Ridge and Mariner developments off Shetland.
However, investment in new fields is set to plunge to the lowest level since 2000 following the completion of work on developments approved amid the long period of high oil prices that ended in 2014.
Spending on decommissioning is likely to fall slightly this year but will increase sharply from 2020.
The predictions come in a report on the outlook for the UK North Sea which may provoke mixed feelings in the oil and gas industry.
The partial recovery in the crude price since November 2016 has fuelled hopes brighter times may be on the way following three grim years in the North Sea.
Recent surveys have suggested confidence is returning in the area, where firms have slashed investment and shed thousands of jobs since 2014.
Edinburgh-based Wood Mackenzie’s prediction that at least five exploration and appraisal wells will be drilled West of Shetland highlights the potential of an area which has been generating increasing excitement among firms.
Five wells would be the most drilled West of Shetland in one year since 2014.
The recent discovery of the giant Lancaster field by Hurricane Energy underlined the potential to make big finds in an area in which there has been relatively little drilling.
Wood Mackenzie noted: “All eyes (are) on West of Shetland, where exploration and key appraisals could fuel the next developments.”
It thinks America’s Apache will be the most prolific driller with up to five wells.
Private-equity backed Siccar Point Energy will drill a well with Ineos targeting the Lyon prospect, which is estimated to contain more than 250 million barrels oil equivalent.
Mhairidh Evans, senior North Sea analyst at Wood Mackenzie noted: “That would grab attention on a global scale if it came in.”
Fifteen exploration and appraisal wells are due to be drilled in the UK North Sea in 2018, in line with last year.
Wood Mackenzie said: “2018 production will be highest since 2010 due to recent start-ups.”
However, the report’s findings suggest conditions are likely to remain very tough in the supply chain.
Services companies have faced pressure to cut costs amid fierce competition for work in a shrinking market.
Wood Mackenzie expects capital investment on new projects to fall to $6bn (£4.4bn) this year, compared with $8bn last year and $21bn in 2014. Start-ups will result in the number of projects under development shrinking.
The consultancy noted 14 projects are in the running for approval in the final investment decision process, indicating firms are preparing to invest in the North Sea.
Ms Evans said: “We see a very good hopper of projects with a realistic chance of bring sanctioned.”
But the projects are smaller than giants approved during the boom.
Wood Mackenzie cautioned: “New FIDs will hold investment steady in 2019, but spend will fall sharply from 2020 without new (and material) projects.”
Services firms may have to wait years before work starts in earnest on projects that are sanctioned.
Wood Mackenzie expects private equity-backed firms will be in the market for North Sea assets that majors put up for sale as they shift investment to what they see as promising areas overseas.
The firm forecast spending on decommissioning will fall to $1.8bn in 2018 from $2bn last year, reflecting amendments to project schedules. It added: “We expect a big step up in activity from 2020.”
Wood Mackenzie expects 35 exploration and appraisal wells will be drilled this year off Norway, where spending on new projects will fall five per cent to $15bn.
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