Market Insight December 2017

Well count remains low, but technical exploration success tops 300 million boe for the second consecutive year The number of exploration wells drilled in 2017 looks set to remain low and in line with the four-year average, with 14 spuds over the first three quarters of the year and just one more drilled over the fourth quarter. Of those drilled so far, at least two are known to be technical successes with combined recoverable volumes estimated to be over 300 million boe. Both, however, represent challenging potential developments. The Statoil-operated Verbier well was initially announced as dry, but after side-tracking to target an up-dip location, technical reserves with current estimates of between 25-130 million boe were discovered requiring further appraisal. The other success was at the Halifax well, which was exploring basement plays in Hurricane’s west of Shetland acreage analogous to their nearby Lancaster field. Hurricane encountered technical reserves currently estimated at 250 million boe, making it one of the UK’s biggest discoveries in the last decade. At the time of publication, six exploration wells have been plugged and abandoned, while a further well, Nexen’s Glengorm, was abandoned due to mechanical problems. At least two wells have not yet released their results, with two more still actively drilling in the basin. Just seven appraisal wells were drilled over the first three quarters of 2017. With no pick-up in activity expected during the fourth quarter, this is likely to be another year of single-figure well spuds in line with forecasts at the start of the year. One reason for this lowwell count is the similarly low levels of recent exploration success, meaning few new opportunities have arisen for companies to pursue and appraise. However, Apache has successfully appraised their Callater discovery and one well is still active: the Wintershall’s Winchelsea discovery, which is likely to be tied back to its Wingate field if results are positive. The number of development wells drilled during 2017 is also an area of concern for the future of the UKCS. With 63 wells drilled during the first three quarters of the year, around 80 development wells are forecast to be spudded over the full year. This represents the second consecutive year of record low development drilling. Although this may be partly attributable to more efficient drilling and recent development concepts requiring fewer wells to maintain production, there are concerns about the potential impact on production from existing platforms. Over the last 40 years, the number of development wells spudded has strongly correlated with total production from the basin, indicating that a decline in development drilling could be quickly followed by a decline in production.

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Figure 8: Exploration Well Count versus Volumes Discovered

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350

Volumes Discovered (RHS) Exploration Well Count (LHS)

300

20

250

tnuoC lleW noitarolpxE

15

200

150

10

100

5

50

Technical Recoverable Reserves (Million boe)

0

0

2012

2013

2014

2015

2016

2017*

*Volumes Discovered Q1-Q3 2017

Source: OGA, Wood Mackenzie

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