An analyst has tempered expectations of a “flurry” of North Sea asset sales following the Chancellor’s decision to introduce transferable tax history (TTH) from November 2018.
Yvonne Telford, senior analyst, north-west Europe research, at Westwood Global, said the reforms were constructive and that they would help narrow the valuation gap between buyer and seller.
But Ms Telford said the oil price environment was still too challenging to support a marked upswing in merger and acquisition activity.
She said: “Of late, a number of late life asset buyers in the UKCS have been smaller operators with lower overheads and often backed by financial sponsors with a defined investment horizon.
“Considering the near to medium term outlook for commodity prices, Westwood believes the key challenge in the UKCS is for mature fields to successfully operate on their own or as a hub for smaller fields.
“In the current oil price environment, incremental production volumes from mature fields are minimal whilst the ongoing operating and maintenance costs are significant.
“Buyers and new entrants into the basin will need to add new volumes and /or reduce costs by deploying innovative approaches.
“An example of which has been Wintershall’s approach of operating its SNS facilities remotely from onshore in the Netherlands.”
She added: “Accessing capital markets for the vast majority of E&P companies will continue to be challenging in the current environment, which is a key deterrent to M&A transactions.
“Whilst Westwood acknowledges the importance of TTH in bridging valuation gaps, it doesn’t expect a flurry of UKCS transactions to consummate in the near to medium term, as the underlying commodity price environment continues to be challenging.”
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