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Wood Mackenzie sees buoyant North Sea oil, gas exploration, M&A prospects

London — The North Sea oil industry is set for a recovery in exploration drilling and healthy levels of mergers and acquisitions this year, as privately-owned companies take a growing role, consultancy Wood Mackenzie said Tuesday.

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Wood Mackenzie forecast an uptick in UK exploration drilling this year with 10-15 wells to be drilled, up from eight last year, and that 40 exploration wells would be drilled offshore Norway, up from 26 last year and a return to levels before the 2014 price downturn.

"Budgets are bigger and company portfolios are brimming with prospects matured through the downturn. The competition for assets in the M&A market will be fierce, particularly in Norway, so growth via the drill bit is attractive" it said.

Norway's state-controlled Equinor will lead the way, being the only major company to drill more than a handful of exploration wells in the North Sea this year, as it expects to drill around 20 across Norway and the UK, Wood Mackenzie said.

Equinor has said it drilled 15 exploration wells worldwide in the first nine months of last year.

Wood Mackenzie also forecast continued asset sales by major companies, particularly US majors.

"The drivers to divest are in place, so too are the enablers: a pool of buyers eager to grow. Most of the assets up for grabs will need buyers with deep pockets," it said. "Listed independents and even Asian National Oil Companies cannot be ruled out, but most roads lead to the wave of privately backed/owned companies."

Wood Mackenzie forecast a "bumper year" for project approvals in the North Sea region, with 12 UK projects to be approved, and nine for Norway, plus one in the Netherlands and one in Denmark.

In terms of production, it forecast Norwegian gas output would approach record levels while Norwegian oil production would fall for a third year in a row, pending start-up of the Johan Sverdrup field toward year-end.

It forecast UK oil and gas output would rise by 4% this year, on a barrels of oil equivalent basis.

In terms of the business environment, Wood Mackenzie noted continued uncertainty about the global economy and Brexit and said these would probably deter big fiscal or regulatory changes by the region's governments.

"Companies with the lowest-cost projects and the most optionality will be the winners this year. As costs begin to creep up, the window to sanction at the lowest price will begin to close," Wood Mackenzie said.

"The North Sea will be responsible for a third of global sub-sea awards in 2019. Day rates for floating rigs rose around 15% in 2018 and we expect a similar increase through 2019."

--Nick Coleman, nick.coleman@spglobal.com

--Edited by Daniel Lalor, newsdesk@spglobal.com