NORTH Sea operator Deltic Energy has unveiled plans to ramp up activity in international markets after making a bold statement that the UK is “not the ideal place” to invest in new oil and gas exploration.
The Aim-quoted natural resources investing firm, which parted company with chief executive Graham Swindells last week, announced details of a new strategic focus for the next 12 months that will include extracting value of its existing core UK assets, principally the Selene prospect, while eliminating or deferring expenditure on non-core assets.
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An operational and strategic update from the company said: “For the last decade, Deltic has invested in its UK portfolio and achieved material exploration success despite the well-publicised political and fiscal headwinds that have hampered the UK’s oil and gas industry in recent years.
“It is clear that, while this situation persists, the UK is not the ideal place in which to invest in new oil and gas exploration or appraisal opportunities. Therefore, the board has carefully considered the best way to leverage the company’s international experience and expertise to create value for shareholders going forward.”
The North Sea exploration pioneer noted: “High-impact exploration will always be an integral part of Deltic’s DNA, and the company will continue to selectively pursue these types of opportunities which could provide significant upside for shareholders in the medium to longer term.”
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New chief executive Andrew Nunn, who replaced Mr Swindells last week after serving as Deltic’s chief operating officer since 2015, said: “Our immediate focus is the ongoing Selene exploration well, where initial drilling indications are encouraging.
“The board has considered the best way to deploy the company’s experience and expertise to create value for its shareholders. As always, the balance of geological, operational, and political risk must be considered, and we are actively assessing a number of attractive opportunities in geographies where more supportive policies towards oil and gas development exist.”
Deltic has a 25% working interest in the Selene licence which is located in the heart of the long-established Leman Sandstone gas play in the southern North Sea. The Shell-operated well reached its total target depth of 3,540 metres on October 17 and encountered a 160-metre-thick section of Leman Sandstone with gas present throughout, Deltic confirmed.
Deltic’s shares plunged around 20% following the announcement of Mr Swindells’ departure and the shares have fallen by almost 95% over the last two years, reflecting a significant change in outlook for North Sea firms since the windfall tax was introduced in 2022.
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The former Conservative government imposed the tax after companies enjoyed a huge boost to their profitability from the surge in oil and gas prices triggered by Russia’s war on Ukraine.
Deltic now embarks on a new strategy to stabilise operations and plan for future growth, despite the challenging UK oil and gas environment. The company’s profile soared after making the bumper Pensacola find on a North Sea licence that it persuaded Shell to buy into, its success highlighting the role played by minnows such as Deltic in raising awareness of the remaining exploration potential in the mature North Sea.
However, the company was left facing huge challenges as interest in North Sea exploration and development activity evaporated amid tax increases and the prospect of more to come.
In June, Deltic withdrew from the Pensacola licence after it was unable to raise the funds needed for its share of the work on the prospect despite an “exhaustive effort”. It cited “deteriorating sentiment towards the oil and gas industry as a result of ongoing fiscal volatility and negative political rhetoric in the run-up to the July election”.
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The oil and gas industry is braced for Chancellor Rachel Reeves to confirm in her Autum Budget on October 30 that the windfall tax rate will increase by three percentage points.
Meanwhile, the company has announced that non-executive board member Peter Cowley will step down with immediate effect, with no plans to recruit a replacement in the short term.
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