Major North Sea oil and gas deal falls through as companies blame 'challenges' facing energy firms

United are now looking to relinquish their licence entirely by the end of the month after Quattro were left unable to raise the required funds to complete the transaction.

A major North Sea oil and gas deal has collapsed, with the companies involved hitting out at the "regulatory and fiscal challenges" currently facing UK energy firms.

United Oil and Gas informed investors on Wednesday morning (November 1) that is has pulled out of a deal with Quattro Energy for the conditional sale of the UK Central North Sea Licence that contains the Maria discovery.

It holds possible reserves of around 17.7 million barrels of oil and gas, but Quattro were unable to raise the required funds to complete the transaction.

United are now looking to relinquish their licence entirely at the end of November "having exhausted all other available avenues to progress this opportunity" as they say the Westminster tax regime is "undermining investor confidence."

It comes as companies continue to show their frustrations with the Energy Profits Levy (EPL) - known as windfall tax - that they say prevents companies from borrowing funds to explore North Sea fields and better the UK's energy security.

The UK Government introduced a windfall tax to help fund aims of lowering gas and electricity bills, but it has increased from 25 per cent to 35 per cent.

Offshore firms also pay around 30 per cent corporation tax on profits as well as the supplementary 10 per cent rate, with the windfall tax taking their overall rate to 75 per cent.

United's market update stated that despite the potential of the Maria field, the deal's collapse came "against the backdrop of the current regulatory and fiscal challenges impacting the UK North Sea undermining investor confidence in the progression of potential developments in this sector."

United chief executive Brian 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."

Ryan Crighton, Policy Director at Aberdeen & Grampian Chamber of Commerce, has called for urgent reforms to the windfall tax following the deal's collapse.

He said: "The Energy Profits Levy (EPL) is now clearly having a detrimental impact on investment in the UKCS and is undermining the UK Government’s stated aim of increasing oil and gas production to enhance our domestic energy security," he said.

"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.

"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 operators also suggests that under traditional reserve-based lending mechanisms, the UKCS has become un-investible for many. This needs to be a wake-up call to the UK Government.

"The introduction of a price floor has made not difference, as the average price has been set far too low at a level which, by the Treasury’s own admission, is unlikely to be triggered.

"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."

Read the latest issue of the OGV Energy magazine HERE