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North Sea Oil: A real focal point with approvals, acquisitions and licence awards

Investors were reminded again today that the North Sea is no backwater for the oil industry.

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Investors were reminded again today that the North Sea is no backwater for the oil industry.

A spate of activity in the past few days shows that the maturing oil region continues to be a real focal point. Indeed, it has been a week of approvals, acquisitions and new licence awards.

Perhaps the highlight was the news that Shell is spending $525 mln on increasing its stake in a cluster of established fields off Aberdeen. This, along with a number of new licence awards, signal’s a rejuvenated interest in the North Sea.

The initial results of the UK’s 27th licensing round were revealed today by the Department for Energy and Climate Change (DECC).

A total of 167 licences were awarded in the record breaking bidding round which proved to be the most competitive to date.

“This demonstrates the continuing attractiveness both of the United Kingdom Continental Shelf as an oil and gas producing province,” said John Hayes, minister for energy.

“Oil is a global business and the companies are deciding where to allocate their capital in a very competitive environment. The UK remains a favoured destination, with the industry clearly seeing lots of potential and new opportunities.”

Meanwhile Mike Tholen, economics and commercial director at industry body Oil & Gas UK, said the success of the licensing round reflects the vast opportunity that remains for business in the North Sea.

“The record number of applications for licences in this 27th Round shows that investor confidence is returning following 18 months of constructive engagement with the Treasury and the announcement of several measures aimed at boosting activity,” he said.

Two of the majors receiving new acreage had already signalled their commitment to their respective futures in the North Sea.

Prior to Shell’s $525 mln Hess deal, Talisman yesterday received the DECC’s seal of approval for a £1.6 billion regeneration programme, in which it will improve and extend production from a number of maturing fields. It is predicted to allow an extra 100 million barrels of oil to be produced.

Such developments are being, in part, credited to the government’s recently introduced tax breaks for new projects to extend the life of ageing fields like these.

“There is no doubt that new tax regime has meant they’ve been able to go ahead with the projects, it is definitely a significant incentive,” said Malcolm Graham-Wood, oil advisor at VSA Capital.

“A number of [companies] will be doing things which they might not have done before. Those with North Sea acreage and development projects are clearly going to be see a positive effect.”

Aside from Shell and Talisman, new licences also went to other major international companies like BG (LON:BG.) and Centrica (LON:CNA), as well as other larger North Sea players like EnQuest (LON:ENQ), Premier Oil (LON:ENQ) and Cairn (LON:CNE).

Meanwhile AIM quoted, North Sea focussed companies also expanded their businesses by securing new acreage.

Notable juniors included Trap Oil (LON:TRAP), Faroe Petroleum (LON:FPM), Xcite Energy (LON:XEL), Ithaca (LON:IAE), Valiant Petroleum (LON:VPP) and Parkmead (LON:PMG).

Acknowledging the licence award this afternoon, Xcite Energy told investors that its new acreage is part of a new growth strategy which build upon the development of the Bentley heavy oil field.

"The offer of these Blocks is a welcome expansion of the Xcite portfolio,” chief executive Rupert Cole said in a statement.

"Whilst we remain focused on the development of the Bentley field, these additions clearly demonstrate our intent to grow Xcite into a significant North Sea player."

This expansion comes as the development of the Bentley oilfield moves to a crucial stage. The company recently completed the Phase 1A programme and it is now preparing to embark upon the next phase which will kick-start commercial oil production.

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