An uptick in North Sea mergers and acquisitions (M&A) activity in the first half of 2017 was a “tentative sign” that investor confidence is starting to return to the oil and gas sector, a new report said.
The latest economic report from Oil and Gas UK (OGUK) said £4.6billion ($6billion) worth of deals were inked in that time, sending out a “vote of confidence” in the North Sea.
Landmark deals include private-equity backed Chrysaor’s £3billion purchase of a package of assets from Shell.
Further M&A activity is expected this year and next, according to the report, which is being launched today at Offshore Europe 2017.
The report’s authors also said North Sea companies had become more efficient during the downturn, almost halving lifting costs since 2014, while production has jumped 16%.
OGUK chief executive Deirdre Michie acknowledged there are still “serious issues” facing the industry, but she is hopeful that the “tide is turning”.
Ms Michie also expects employment levels to stabilise over the rest of the decade.
The report said 300,000 UK jobs are currently supported by the oil and gas sector, which is about one-third fewer than in 2014, when the total was 460,000.
The rate of job losses is now slowing, with 13,000 people made redundant so far in 2017, compared to almost 60,000 in 2016.
But the report warned headcount reductions could “threaten core capabilities” within the supply chain if activity does not pick up.
Low activity levels are a major concern as offshore exploration and appraisal work remain in the doldrums.
Drilling activity remained at record low levels last year with only 14 exploration wells and 8 appraisal wells drilled.
And the North Sea still needs more fresh investment, as only three new fields approvals have been sanctioned since the start of 2016.
The report said decommissioning was the only area were spending is on the rise, though it only made up 7% of total expenditure on the UK continental shelf last year.
OGUK said investors still want more certainty over Brexit. Recently published research said the cost of trade for the sector could leap by £500million per annum if the UK reverts to World Trade Organization rules.
However, trade costs could fall by £100million if the UK can negotiate minimal tariffs.
Ms Michie called for the UK Government to provide clear energy policy, support a Sector Deal and include decommissioning tax relief reforms in the Autumn Budget.
Ms Michie added: “With global oil and gas demand forecast expected to rise by 25% to 2035, we have a crucial part to play now and during the transition to a lower carbon future.
“It’s vital that industry and government work together to secure our future. There are billions of barrels of oil and gas still to go after in our own back yard. Government and industry must make the most of the opportunity offered by our sector.”