April 19, 2012 / 11:04 PM / 7 years ago

Offshore UK oil, gas drilling rising -report

* March drilling data suggests strong growth

* Tax breaks, high oil prices underpin investment

* North Sea gas leak could derail, limit uptrend

By Oleg Vukmanovic

LONDON, April 20 (Reuters) - Drilling for oil and gas in waters off Britain increased 22 percent in the first quarter versus a year ago, providing the latest sign of what may prove to be an upward trend, according to a survey by Deloitte Petroleum Services.

A total of 11 exploration and appraisal wells were drilled in UK continental shelf (UKCS) in the last quarter, compared with nine in the first quarter of 2011, it said.

“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,” Graham Sadler, managing director of Deloitte’s Petroleum Services Group, said.

Tax breaks handed down to energy companies in March and a high oil price should encourage a further increase in drilling this year, he added.

However, a big gas leak at Total’s North Sea Elgin platform may slam the brakes on exploration drilling as it highlights technical and safety issues across the region, the Deloitte report warned separately.

Rising oil prices tempted some operators into pursuing new developments, even though funding difficulties and euro zone debt fears kept a leash on exploration investment across north west Europe during the quarter, the report said.

This was the first pick-up in first-quarter drilling activity since 2008, partly because the nine wells drilled in the year-ago quarter was the lowest number since 1999, the report said.

Rising oil prices also explained a growing number of mergers and acquisitions so far this year, it said, while tax breaks handed down for oil and gas rig decommissioning work in March may spur investment and stimulate new deals.

Geologists see significant remaining potential in West of Shetlands, the Norwegian North Sea and Barents Sea, but constraints on rig availability in the region also could keep a lid on exploration, particularly in areas prone to bad weather, Deloitte said.

The latest quarterly figure is down 15 percent from the 13 wells drilled in the fourth quarter of 2011.

“Drilling activity levels during the first quarter tend to be usually low, driven by adverse weather conditions affecting operations during the winter months,” the report said.

Elsewhere in Europe the trend was mixed, with a decrease in activity in Norway and little change elsewhere.

Merger and acquisition deals fell 18 percent in the first quarter from the previous fourth quarter, with a total of 37 deals recorded throughout North West Europe.

Of those, 60 percent were on the UKCS, with farm-ins and asset acquisitions remaining the most common types at 40.5 percent each, the report said.

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