THE North Sea oil and gas boom stalled in the first quarter of 2013, with both drilling and corporate activity falling back.
But accountancy firm Deloitte, which published its latest industry snapshot today, said the industry should return to growth in the spring as new tax incentives encourage firms to invest.
Derek Henderson, senior partner at Deloitte in Aberdeen, said confidence in the North Sea was still high.
“Generally activity eases during the first quarter each year and, based on the second half of last year, we would certainly expect later spring and summer to demonstrate a return to the kind of momentum we saw then,” he said.
“The oil price is still favourable and there are an increased number of incentives to encourage investment in North Sea exploration and development.”
In January, Deloitte fuelled hopes that the UK oil industry would soon return to production growth as it reported a 33 per cent rise in exploration and appraisal wells during 2012.
The sector enjoyed record levels of investment as the high oil price made even hard-to-reach fields attractive. Tax breaks announced at last year’s Budget also helped persuade firms to start spending, and the investment is expected to hit new highs in 2013.
But the strong finish to 2012 led to a winter lull in the first three months of this year. Nine new wells were drilled during that period, compared to 11 in the same quarter in 2012 and 19 in the final three months of last year.
The flattening off of activity was replicated across north west Europe as a whole.
According to Deloitte, farm-in agreements, where a company takes a stake in another’s field, were a key part of corporate activity in the UK continental shelf recently. They accounted for 36 per cent of deals completed following the recent round of new licences awarded by the UK government, which brought new firms to the North Sea.
First-quarter deal activity overall was slightly down on the sale period in 2012, with 19 deals compared to 23.
Graham Sadler, managing director of Deloitte’s oil services arm, said: “Deal volume may be down, but it is still relatively strong and the increasing proportion of farm-ins would suggest the need for smaller companies to seek funding partnerships for future drilling.
“Most markets have seasonal changes and the UK continental shelf is no different in that respect; from where we sit there is every reason to expect the North Sea to continue the growth it achieved last year as we continue into 2013.”
Field developments have also remained steady. During the first quarter of 2013, two fields have received field development approval from the Department of Energy and Climate Change (DECC), with three fields coming on-stream.
For the same period in 2012, four fields received field development approval, while no fields were brought on-stream.
In a sign that tax breaks are key to the latest round of activity, all five of the fields that have received approval or come on-stream this quarter will qualify for allowances. Four qualify for the small field allowance and one qualifies for the ultra-heavy oilfield allowance.
Britain’s onshore oil industry saw a sharp rise in activity with five deals announced in the first quarter of 2013 compared to four deals during the whole of last year.
The only UK deal at a merger or acquisition level was Aberdeen-based Ithaca Energy’s £203 million buyout of rival Valiant Petroleum.
Analysts have predicted that recent government guarantees on tax relief against the cost of decommissioning old oil fields should lead to a pick up in corporate activity this year.