Oil and gas firms may be sitting on new investment decisions until the future of the North Sea becomes clearer, according to a new report from business adviser Deloitte.
The document details drilling, licensing and deal activity across north-west Europe over the third quarter of 2014.
Deloitte’s petroleum services group (PSG) reveals just four offshore UK deals.
This is slightly down on the five transactions recorded in the previous three months but much lower than the 14 seen during the third quarter of 2013.
Derek Henderson, senior partner in Deloitte’s Aberdeen office, told the Press and Journal the drop in deals may be down to operators dithering over big investments while they wait for further clarity about the future of the UK North Sea.
Firms are waiting for more details of the implementation of the recent Wood Review, including the setting up of a new regulator, and tax changes expected in Chancellor George Osborne’s Autumn Statement on December 3, he said.
Mr Henderson added: “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 (UK continental shelf) 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.”
Mr Henderson said a more predictable fiscal regime, with a lower tax burden, was key for improving investor confidence.
He added: “Incentives which will encourage exploration and appraisal activity, as well as new entrants to the region, are also a vital part of the equation.
“The UKCS needs to be internationally competitive if it is to attract the investment it requires to boost its future prospects.
“This is the most important Autumn Statement for some time now as it could be the last chance to get the fiscal regime right.”
Deloitte says 11 exploration and appraisal wells were drilled in the UK North Sea during Q3 2014, up on the seven reported in the previous three months, and unchanged on a year ago.
The report also highlights price pressure and access to finance as ongoing concerns, adding: “A large number of North Sea assets are on the market from some of the larger operators.
“Smaller companies – in some cases with limited budgets – tend to be the most likely buyers, creating a price differential in the market and potentially stalling deal activity.”
According to Graham Sadler, managing director of Deloitte’s PSG, the latest drilling figures reflect a worrying pattern.
Mr Sadler 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.
“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.”
Andrew Reid is group chief executive of energy consultancy Douglas-Westwood
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