North Sea firms delaying investment decisions

Business advisory firm Deloitte has published a report describing how oil and gas operators may be holding back new investment decisions until the future of the North Sea is established. The report sets out how drilling, licensing and deal activity across the North West of Europe over the third quarter of 2014 was by way of four offshore UK deals.

Deloitte’s senior partner said the reduction in deals could be as a result of North Sea operators waiting for further clarity on the future of the UK Continental Shelf. Organisations are waiting for clarification on the Wood Review, the formation of the Oil and Gas Authority and the changes that are to be made on the North Sea’s fiscal regime. More details are expected in the Chancellor’s Autumn statement.

Senior Partner Henderson said:

“The industry continues to wait and see how the future of the North Sea will take shape. 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.” The report explained what whilst exploration and appraisals were in line with last years projections, price pressure and access to finance continued to be an issue for the UKCS. Graham Sadler, Managing Director at Deloitte’s PSG added that the number of new wells drilled was higher this quarter than compared to the last. He said:

“While it’s encouraging to see an increase in the number of new wells drilled this quarter, we are starting from a low base. 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 US$95 this quarter. This combination of factors continues to make the economics of extraction more difficult for operators.”