United Oil & Gas (LON: UOG) has terminated an asset purchase agreement with Quattro Energy for the conditional sale of a North Sea licence.
While regulatory consent for the transfer of the UK Central North Sea Licence P2519, containing the Maria discovery in Block 15/18, United said Quattro had been unable to raise the funds to complete the transaction.
Estimates found the Maria discovery contained up to 17.7 million barrels of oil and gas.
United had granted a Quattro a number of extensions in an attempt to get the deal over the line, but the company said today the two parties had not agreed to any further delay.
In a statement, United pointed to the “current regulatory and fiscal challenges impacting the UK North Sea undermining investor confidence” in the sector as a factor in the sale not going ahead.
The UK government introduced the Energy Profits Levy (EPL) in May 2022, increasing the tax burden on North Sea oil and gas operators.
United says ‘disappointing outcome’
United chief executive officer Brian Larkin said it was a “disappointing outcome for both parties”.
“We had identified our interest in the Maria licence as non-core to our future strategy and on that basis undertook a farmout process which resulted in the agreement to sell to Quattro on the terms announced in January this year,” Mr Larkin said.
“Since signing this agreement with Quattro, we have sought to support their efforts to raise the funds required to complete this transaction and had regular interaction with the Quattro team and their advisors as they progressed their funding process.
“It is therefore a disappointing outcome for both parties, that due to the challenging regulatory and fiscal backdrop in the North Sea, Quattro were unable to complete their funding process.”
United said the current phase of the licence expires on November 30 and and a firm commitment to drill a well is required to move the licence beyond this date.
As a result, United said the company had made the decision not to apply to move into the next phase.
In total, the company had invested $1 million into progressing the Maria discovery.
Chamber of commerce blames windfall tax
Responding to the news this morning, the Aberdeen & Grampian Chamber of Commerce (AGCC) said the collapse of the deal shows the “windfall tax is hindering the ability of companies to borrow the money they need to unlock North Sea fields and boost UK energy security”.
AGCC policy director Ryan Crighton said the EPL is now “clearly having a detrimental impact” on investment in the UK continental shelf.
“We carry out comprehensive research twice a year to measure energy sector sentiment, and the most recent edition of that survey showed confidence in the UK sector is at a record low, and clearly deviating from other basins,” Mr Crighton said.
“It is clear from our members in the energy sector that discretionary capital is moving elsewhere due to the severity and duration of the tax.
“The experience of independent operators also suggests that under traditional reserve-based lending mechanisms, the UKCS has become uninvestible for many.”
Mr Crighton said the announcement today “needs to be a wake-up call” to the UK government.
“We believe the Energy Profits Levy should be scrapped to secure the investment we need in the energy sector to enhance our energy security today, and to help fund the new technologies of tomorrow,” he said.