The North Sea, located in Western Europe, is among the most important non-OPEC oil producing regions in the world thanks to its proximity to major European markets and the geopolitical stability in the region.  The region is the second most important geographical market for Transocean (NYSE:RIG) after the U.S. Gulf of Mexico and is also the primary market for the company’s harsh environment and mid-water floaters. While the North Sea continues to be Europe’s largest oil producer, the output has been weak as many wells in the region are in their mature phases. Here we examine Transocean’s operations in the North Sea and also provide a brief overview of activity in this technologically intensive market.
Transocean’s Operations In the Region
The North Sea faces extremely harsh weather conditions and oil and gas are located at great depths below the ocean floor, necessitating the use of specialized offshore drilling technologies. It is the single largest market for mid-water floaters which operate at water depths of under 4,500 feet. Out of Transocean’s total fleet of 82 rigs, 15 of the rigs are contracted in the North Sea. Moreover, 6 out of 7 of Transocean’s harsh environment floaters are located in the region, contracted at average daily rates of around $470,000. The firm also has 7 mid-water floaters and two high specification jack up rigs operating here with average day rates of around $300,000. However, the overall day rates are slightly lower than in the what the firm earns in the Gulf Of Mexico where it primarily operates deepwater rigs with average day rates nearing $500,000.
Most of Transocean’s contracts in the region are also shorter at between 1 and 2 years unlike the contracts in the Gulf of Mexico which are typically 3 years and above. This could mean that that mobilization costs could be slightly higher in the North Sea.
Oil And Gas In The North Sea
A Large Market, But Production Has Peaked: The U.K. and Norway hold a bulk of the reserves in the region but their output has been declining over the last few years since most of the production comes from mature wells. In the U.K. for example, domestic oil production fell from around from 2.7 million barrels in 2002 to around 1.4 million barrels in 2010. Production in Norway also peaked in 2001 and has slowed down since then.
Investment Remains Strong: Despite the slowing production, the region could still hold between to 30 and 40 million barrels of oil and given the importance of oil and gas to the economies of both the U.K. and Norway, there has been a new wave of new investment from oil and gas companies as they use technologies such as enhanced oil recovery (EOR) to improve output from mature fields.  Investment in the U.K touched £11.4 billion ($17.4 billion) in 2012 and is expected to rise to £13 billion in 2013. ((OilPrice.com)) Norway also has seen strong investment in its oil industry with investments growing by around 18% in 2012 although it is likely to slow marginally in 2013. 
Rig Count Has Remained Relatively Flat, But It Could Grow: The rig count metric, which is a key indicator of the market size for drilling rigs, hasn’t witnessed much growth over the last few years at least in the U.K and Norway. The average annual offshore rig count in Norway has held flat over the last decade at between 18 and 21 rigs while the average rig count in the U.K has declined from 22 in 2002 to 17 as of 2012.  However, we believe that things could look up going forward since there have been some significant new projects announcements such as Statoil’s $7 billion Mariner project and BP’s $500 million Clair Ridge appraisal drilling program which could boost demand for new rigs. Notes: