Oil and gas firms are “biding time” on new investment decisions until the future of the North Sea becomes clearer.
A new North-West Europe report by Deloitte’s Petroleum Services Group found there were four deals announced on the UK Continental Shelf in the third quarter of 2014, one less than in the previous three-month period but substantially down on the 14 in the same quarter last year.
Deloitte senior partner Derek Henderson said the drop in deals may be down to North Sea operators waiting for further clarity in the wake of the Wood Review and the formation of a new regulatory authority.
He said changes to the North Sea’s fiscal regime, expected to be laid out by Chancellor George Osborne in early December, would also be key in shaping strategy for many firms. “The industry continues to wait and see how the future of the North Sea will take shape,” Mr Henderson said.
“This is a particularly interesting year for the UKCS as it goes through a period of transition. There remains much change on the horizon and, as a result, many companies will be biding their time.
“All eyes will be on the Chancellor’s Autumn Statement, where industry will be looking for measures which support the challenges of operating in this mature basin.
“Having spoken to a range of investors in the North Sea, we know that a fiscal regime which is more predictable, with a lower tax burden, is key for improving investor confidence.
“Incentives which will encourage exploration and appraisal activity, as well as new entrants to the region, are also a vital part of the equation.
“Ultimately, the UKCS needs to be internationally competitive if it is to attract the investment it requires to boost its future prospects.
“We’ve made all of these views clear in our submission to the fiscal consultation. This is the most important Autumn Statement for some time now, as it could be the last chance to get the fiscal regime right.”
In total, the report’s authors found 11 exploration and appraisal wells were drilled on the UKCS in the third quarter, up on the seven reported in the previous three months.
Graham Sadler, managing director of Deloitte’s PSG, said while the number of new wells drilled was higher in the quarter they remained at a relatively low level.
He said: “Until we see the incentives required to encourage further exploration and appraisal activity, drilling could remain muted in the short to medium term.
“During this period of transition, costs have remained high for North Sea firms, access to finance has remained difficult and the price of oil has dropped to as low as $95 this quarter,” he added.
“This combination of factors continues to make the economics of extraction more difficult for operators.”