N. Sea operators must cut costs to survive, warns Deloitte

 

Derek Henderson, Deloitte’s Aberdeen Office Senior Partner
Derek Henderson, Deloitte’s Aberdeen Office Senior Partner

By DARA BUTTERFIELD

A new study from business advisory firm Deloitte has highlighted the need for continued investment from both businesses and government as the North Sea industry goes through a ‘period of transition’.

Deloitte’s Petroleum Services Group’s North West Europe Review shows that the number of wells drilled in 2014 was down ten – 20% –  from those drilled in 2013. The Petroleum Services Group hopes that drilling rates will increase but that it will require clarity from the Government on fiscal incentives.

Graham Sadler, Managing Director, Deloitte Petroleum Services Group, said: “Over the last 12 months, both industry and government have recognised the need for change on the UKCS. We have started to see some positive steps taken in that direction, with the recommendations made in the Wood Review and tax changes announced in the Autumn Statement among them.

“We continue to see steady but low levels of drilling and hope this will increase. However, that will require industry dialogue with, and strong guidance from, the OGA. It will also need further clarity from Government over the fiscal incentives that will be made available to support exploration and appraisal activity.

“To sustain its future, the North Sea’s stakeholders will need to adapt to a lower oil price environment and reduce costs in order to get through this period of transition.”

The report also showed a reduction in the number of field start-ups in 2014, decreasing from 13 in 2013 to six. However Deloitte predicts that this could again increase in 2015 as lowering the lowering oil price could make assets more affordable and drive investment.

Derek Henderson, Aberdeen Office Senior Partner, Deloitte, said: “Last year saw a reduction in the number of deals taking place in the North Sea, despite a large number of assets being available on the market. Price pressure and access to finance were issues for the most likely buyers – smaller companies with limited budgets – creating a price differential in the market and stalling deal activity.

“While it is not the only consideration, it is likely that if the oil price remains low assets will become more affordable to some of the region’s more cash-rich players who may be looking to invest in the UK basin.

“As a result, we could see more transactions in 2015 as some businesses look to divest and focus on other areas. This could also bring about further consolidation among some of the players in the market. There are definitely firms on the lookout for assets and deals will be done if the price is right.”

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