ABERDEEN, UK – Oil and gas companies may be delaying further investments on the UK continental shelf pending further clarity on the sector’s future.
According to the latest report from business advisory firm Deloitte, four transactions were announced offshore the UK during 3Q 2014, down from the 14 registered in 3Q 2013.
Derek Henderson, senior partner in Deloitte’s Aberdeen office, said companies may be waiting for more detail on the implementation of Sir Ian Wood’s Review, including the formation of a new UK oil and gas authority. They may also be waiting for clarification on planned changes to the North Sea’s fiscal regime, due to be announced by UK Chancellor George Osborne in early December.
“Industry will be looking for measures which support the challenges of operating in this mature basin,” Henderson said. “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.
“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’s report also identified 11 exploration and appraisal wells drilled in UK waters during 3Q, up from the seven reported in the previous quarter.
Graham Sadler, managing director of Deloitte’s PSG, said that although the increase was encouraging, “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 $95 this quarter. This combination of factors continues to make the economics of extraction more difficult for operators.”