The 28th licensing round for the UK North Sea is being hailed as a success with 134 new projects secured (6 Nov) by E&P (exploration and production) companies. Yet efforts to tap this potential could be threatened by the recent collapse in oil prices.
Against this backdrop we favour the methodical approach to exploration pursued by Faroe Petroleum (FPM:AIM), which picked up two new licenses in the 28th round. Broker Canaccord Genuity notes: ?North Sea development focused E&Ps have been dogged in recent years by cost increases, late or underperforming projects, complex and aged infrastructure networks, and tough tax regimes.
?These issues came to the fore periodically, but while oil prices stayed above $100 a barrel and with the benefit (in many cases) of large tax losses, and easy debt financing, the companies eluded very close scrutiny. Circumstances have changed. In addition to the impact on companies, the oil price fall has shone a light onto the very high costs and tax structures of North Sea operations.?
