Oilfield Equipment & Services Report 2013 - Clearwater Corporate ...

The UK marketAlthough North Sea oil production is declining and energyimports now exceed UK production for the first time in 40years, the sector - driven by technological breakthroughs - isstill vibrant and continues to attract considerable interest fromboth home and overseas investors.In particular the market is being strongly driven by the trend oflarger oil groups to reduce their exposure to the North Sea andsell developed assets to companies more willing to extend thelife of declining fields and 'get at' all remaining reserves.According to Oil and Gas UK, a trade body, some 24 billionbarrels of oil still remain to be extracted from the North Seawhile the UK currently exports around £6bn worth of oil and gasa year. Little wonder that the UK government still sees oil, andespecially gas, as a key part of its energy strategy and in early2013 is set to publish an industrial strategy for the sector.The moves come after a bruising dispute between thegovernment and oil companies in 2011 when the Treasuryraised marginal tax rates for companies operating in the NorthSea to up to 81 per cent in some cases in a £2bn tax raid. Thegovernment later said that income from mature sites would beshielded from the full impact of the supplementary tax charge,a move which Oil and Gas UK says has been instrumental inensuring certain large-scale investments have happened overthe past year to 18 months. The government has also sinceannounced a brownfield tax allowance designed to encourageinvestment in older fields. The tax break shields the first£250m-£500m of income on certain projects from paying a 32per cent supplementary charge tax.Life in North Sea yetA good example of how the life of oilfields is being prolongedis the Forties field which was first discovered in the early 1970sby BP. Production peaked at over 500,000 barrels per day (bpd),but when Texas-based Apache purchased the field from BP adecade ago production had declined to 40,000 to 45,000 bpdand it was expected that the field would close.However since then Apache has raised production by drilling anumber of wells off the Echo platform where drilling costs hadhistorically been high. Apache removed the platform and drilledseveral new wells, adding significantly to production. Apachehas since used seismic technology to identify areas of the fieldthat had not previously been fully drained. Meanwhile in 2011Apache also paid £1.1bn for the oil and gas assets of ExxonMobilin the Beryl field in the North Sea.The continued health of the sector was also evidenced in late2012 when oilfield services company Expro opened a new facilityin Aberdeen to enhance its growing well intervention business.Shale comes to UKSeeing the phenomenal changes to the US market broughtabout by the shale revolution, the UK government is increasinglykeen to see a piece of the action too. In December 2012 thegovernment lifted restrictions on fracking, the method ofextracting gas from shale rock, as it gave the green light todrilling operations at a site in Lancashire. Dozens of more sitescould be licensed in coming years as the government seeks tomake up for declining North Sea supplies.At the time of the lifting of the restrictions the governmentsaid shale gas could contribute significantly to the UK’s energysecurity. It said that companies drilling wells would be subjectto a traffic light system with seismic monitoring to ensure thatif there were tremors above a certain level then drilling would behalted pending investigations.Page 6