Deloitte’s Petroleum Services Group’s latest North West Europe Review has revealed a drop in drilling, deals and new field start-ups in 2014.
Deloitte says the drop in drilling was consistent with expectations, given recent trends and market conditions. Deloitte says 40 wells were drilled offshore UK throughout the year, down from 50 in 2013.
However, there was also a reduction in the number of field start-ups in 2014, decreasing from 13 in 2013 to six, and fewer deals completed in the last 12 months, dropping from 63 in 2013 to 23 in 2014.
2014 was been a year of major introspection for the industry - while investment hit record high levels, falling production, increasing costs and poor drilling rates give rise to concern, even before oil prices halved in 2H to today, leading to jobs cuts across the industry.
The result has been recent calls by industry for the government to go further with tax cuts promised as a result of Sir Ian Wood's review of the industry, which had been prompted by concerns in 2013 and published earlier last year.
Graham Sadler, managing director of Deloitte’s Petroleum Services Group, said: “Over the last 12 months, both industry and government have recognised the need for change on the UK Continental Shelf. 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.”
With the price of oil dropping significantly, many asset prices are likely to be revised, which could result in more deals being completed in 2015, says Henderson.
"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.”