July 16, 2012 / 4:43 PM / 5 years ago

Britain's North Sea in mini-revival -report

* Drilling in UK waters jumps 64 pct in Q2 2012 vs Q2 2011

* Five new fields start to produce in the period

* Deal activity rises 47 pct in Q2 2012

By Sarah Young

LONDON, July 16 (Reuters) - Britain’s North Sea, an oil province in long-term decline, is going through a mini-revival, according to research that shows the number of wells drilled, deals signed and new fields coming onstream all climbed during the second quarter of the year.

Drilling for oil and gas in waters off Britain jumped by 64 percent in the three months to June 30 compared with same period last year, a study by Deloitte found, with 18 exploration and appraisal wells drilled in total.

Other positives for the British part of the North Sea included five new fields starting to produce, already equalling 2011’s total for the year, plus a 47 percent rise in deal activity in the quarter compared with the same period in 2011.

The pick-up in activity follows a strong first quarter of the year and will lead to hopes that the brakes have been put on the decline of the UK part of the North Sea, where production peaked in 1999.

“It’s more optimistic than it’s been in recent years, certainly,” Graham Sadler, managing director of Deloitte Petroleum Services Group, told Reuters on Monday.

Maintenance issues led to a shock 19 percent slump in British oil and gas production last year, the biggest fall on record, and any further big drops in output will make life harder for the country’s coalition government which is battling to stimulate growth.

Sadler warned against reading too much into the positive news.

“The new fields (coming) onstream, drilling activity, more players looking to come into the North Sea, they are all positive indicators, but obviously that’s set against the backdrop of it being a mature basin with long-term declining production,” he said.

He said there could be an impact on the rate at which production has been falling: “I think what you could see is the angle of the line, the downward trend, could be slowed.”

However, a gas leak at French oil major Total’s Elgin field has already hurt UK output for this year and the slowing of the British production decline may not come until 2013, industry body Oil & Gas UK said earlier this month.

Part of the reason for the upturn in the North Sea were measures announced by the government in March, which contrasted with a tax increase in 2011 that dented industry confidence.

“We have some way to go before we are back to the levels seen in 2009 and 2010, however the positive announcements in the Government’s March Budget with regards to the extension and change in field tax allowances should encourage further exploration, appraisal and development activity,” he said.

The study also found that the higher number of deals that took place in Britain were asset transactions, which require more capital to be invested, as opposed to partnership deals - so-called farm-ins - where companies share projects.

“That would indicate to us that there’s perhaps more liquidity in the market now in terms of finance generally, that companies are able to access capital in a way that they haven’t been able to previously,” Sadler said.

The report noted two significant deals in the period that highlight renewed confidence in the area - the return of Kuwait’s state oil firm to the North Sea after a deal with EnQuest, and Japanese trading company Mitsui entering the North Sea for the first time.

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