North Sea oil and gas investment has stalled against a background of legislative uncertainty with only seven exploration and appraisal wells spudded in the UK sector in the second quarter compared to 12 in the first three months of 2014.
Oil companies are adopting a ‘wait and see’ approach ahead of changes being ushered in by the recent Wood report, changes to the taxation regime and the creation of the new Oil and Gas Authority, says a report from business advisory group Deloitte.
Derek Henderson, senior partner in Deloitte’s Aberdeen office, said: “There were many recommendations made in Sir Ian Wood’s final report, and it’s likely that the industry could be pausing until it has a better understanding of the impact of these, and the effect on the long term future of the North Sea, before making any big investment decisions.”
The tax environment is a factor that bears heavily on the decisions of all oil and gas companies, with corporate tax rates that can reach 81%.
The number of wells spudded is ten fewer than the same time last year and the lowest since Deloitte started its North West Europe Petroleum Services Group report ten years ago. Similar falls in exploration activity are reported in the Norwegian and Netherlands sectors of the North Sea.
Trying to control escalating costs of oil extraction is also part of the reason for the slowdown, says Deloitte, as field developers were spending five times as much to extract a barrel of oil than in 2001. Partly this is because more technically challenging and difficult to reach areas are being exploited.
The number of deals completed in the quarter also fell, with only five in total compared to ten in the previous quarter, and seven fewer than in the same quarter last year.
