North Sea exploration pioneer warns tax hike could scare off investors

AN oil and gas minnow that convinced giants to invest in highprofile North Sea exploration wells has provided further signs of interest in the area but warned the sector faces significant political headwinds.

Deltic Energy said it enjoyed a transformational year in 2023 during which it made a big find with Shell. In February, Deltic persuaded a Korean heavyweight to fund work on another prospect.

The company said it has also had significant engagement with firms that are interested in buying into acreage off Scotland, which it reckons could contain millions of barrels of oil.

Deltic is increasingly confident about the potential of the Syros prospect after completing seismic survey work on the licence concerned.

With Syros now “drill ready”, Deltic aims to secure a deal by the end of the year with a partner that could help fund work on it.

Such a deal would provide further vindication for the company’s decision to launch an exploration drive in the North Sea amid the slump that started in 2014 after growth in supplies ran ahead of demand.

Deltic’s directors are confident that the company’s North Sea campaign could result in it finding enough oil and gas to make a key contribution to the energy security drive in the UK.

However, the company said the sector faces big challenges given the current political environment.

Chief executive Graham Swindells complained that firms had faced uncertainty since the windfall tax was introduced in 2022, as the Energy Profits Levy (EPL). He indicated that directors fear life could could get harder amid concern that threatened tax changes could frighten investors off North Sea projects.

Labour has proposed to increase the rate of the windfall tax and to scrap the investment allowance that was introduced alongside it.

Mr Swindells warned: “While the EPL creates instability for UK operators, the investment allowance currently in place does however continue to enhance the attractiveness of investing in Deltic projects which attract tax relief.”

Deltic turned heads in February when it made the Pensacola find with Shell. Testing work indicated Pensacola was one of the most significant discoveries in the North Sea in many years. Deltic and Shell plan to drill an appraisal well on Pensacola later this year. They also intend to drill an exploration well on the Selene prospect with Dana Petroleum, which bought into the acreage in February.