New Energy market report from Business Monitor International: "United Kingdom Oil & Gas Report Q4 2012"

Boston, MA -- (SBWire) -- 02/07/2013 --BMI View: The pick-up in drilling activity in the UK's offshore sector will continue on the back of high oil prices and tax reforms that support gas production and development. The clarification of budget rules related to the decommissioning of defunct infrastructure in the North Sea will sustain a trend of smaller independents or newcomers in search of safe, producing assets taking up the mature assets that existing players have decided to offload. This will slow the rate of decline, especially in UK gas production.

The main trends and developments we highlight in the UK Oil and Gas sector are:

- In March 2012, the Department for Energy and Climate Change (DECC) released the UK's oil and gas production figures. Oil production in 2011 fell 20.8% year-on-year (y-o-y) to average 1.15mn barrels per day (b/d), the lowest level of output in the UK since the 1970s. Gas output fell less sharply than oil, slipping 7.14% y-o-y. It confirms our longstanding view that hydrocarbons production in the UK is on the wane.
- Tax allowances could spur project development, particularly in gas. In the 2012 budget, announced in March 2012, the following reforms were introduced: (1) Tax allowances for companies engaged in greenfield exploration and development; (2) Support for brownfield investment; and (3) Clarification of decommissioning tax relief. This was followed by a waiver of Supplementary Tax Charge for shallow water gas fields, announced in July 2012. These government initiatives will further encourage investment - especially in gas projects, slowing the decline in UK gas production.
- A Deloitte report showed that drilling activity in the UK Continental Shelf remains strong and rose 64% y-o-y in the second quarter of 2012. This is in line with BMI's anticipation of a rise in North Sea investment in 2012. We expect drilling activity to stay at relatively high levels, thanks to newly-introduced tax initiatives. However, weak consumer growth and a fall in gas prices could undermine government policy.
- We continue to expect companies to find partners ready to take up the assets they have offloaded in the North Sea, as the latter look to de-risk their portfolio with safe producing assets in the UK. BP is reported to be looking to divest its assets in the North Sea to focus on the less-explored West of Shetlands (WoS). Cairn Energy acquired another North Sea player, Nautical Petroleum in June 2012, while Chinese national oil company (NOC) Sinopec farmed into Talisman's UK North Sea assets for US$1.5bn in July 2012.

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