Lower Operating Costs Result in Increase of M&A Activity

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The UK and Norwegian North Sea has recently shown an increase in mergers and acquisitions activity despite the latest oil price down-cycle and its perception of a high-cost mature basin. Acquisitions of both mature and undeveloped assets have been supported by fair values, the potential for reduced operating costs and large resource bases, all which highlight long term potential for upside.

Despite being both a deepwater and harsh environment basin, operating costs have decreased substantially, for some operators by almost half in the past three years, mostly due to deflationary pressure in the equipment and service industry. For example, North Sea operator Enquest has focused on cost reduction, managing to reduce operating costs by nearly half, from US$42 per boe to US$29 in 2015, and then to US$24 in 2016. The company has also worked to reduce the capital expenditure budget by over 20% for a key development in the North Sea, expected to come on stream in 2017.

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