NORTH Sea-focused IOG has underlined the scale of the challenges posed by the “severe gas market volatility” faced by firms in an update that may increase fears about the outlook for investment in the area.

IOG turned heads in 2019 when it won backing from a company owned by the famed “Sage of Omaha”, Warren Buffett, for a plan to develop a series of discoveries that other companies had decided were not commercially viable.

After starting production from two finds in March last year, the company benefited from the surge in gas prices fuelled by Russia’s war on Ukraine.

However, the company complained yesterday that it had seen prices fall by 85 per cent since August, following a relatively mild winter and efforts by European countries to reduce reliance on Russian output. The outlook for prices has been further clouded by concerns that the global economy will slow amid central banks’ efforts to tackle inflation.

IOG has been left facing challenges in its efforts to comply with the covenant terms set by bondholders who provided growth funding when the outlook was brighter.

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The company has found the process of developing finds it targeted to be more difficult than hoped.

It is looking to sell a stake in one undeveloped discovery to help bolster its balance sheet. However, buyers may be in short supply given the uncertainty IOG directors noted yesterday about what will happen to gas prices.

North Sea industry leaders have warned that firms will slash investment off Scotland in response to the introduction of the windfall tax in May Last year. The rate was increased in November although oil and gas prices had been falling since late summer.

The decision by Labour leader Sir Keir Starmer to call for a ban on new North Sea developments has caused fresh jitters in the Aberdeen heartlands of the North Sea industry.

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Mr Buffett can probably afford not to worry too much about the possibility of his CalEnergy Resources losing money on the investment it made in IOG’s acreage.

However, those who reckon the UK needs to make the most of the hundreds of undeveloped discoveries on the United Kingdom Continental Shelf will be hoping that IOG’s fortunes improve rapidly.