THE North Sea is one of the best places in the world for oil and gas companies to achieve growth according to analysts who highlighted predictions that the recent boom in activity in the area will be maintained for years.
Experts at Seymour Pierce include the North Sea as one of the three "key regions" in which they expect oil and gas firms to generate what they call significant positive momentum in 2012.
The brokerage assesses the prospects for the North Sea alongside Kurdistan and East Africa, both of which are attracting considerable interest from oil and gas firms as they hunt for the projects that will drive growth in future.
The predictions are included in a report on oil and gas companies that are listed on the AIM market published by Seymour Pierce, which could generate interest in the run up to the publication of the 2012 Budget by George Osborne next month.
Oil and gas industry lobbyists claimed the Chancellor's decision to increase the tax rate on North Sea profits by 12 percentage points in the 2011 Budget would lead to firms slashing investment in UK waters.
In a report by Dougie Youngson and Sam Wahab, Seymour Pierce noted: "The UK North Sea saw a record investment of £7.5 billion in 2011, driven by high oil prices. This level of investment is forecast to continue until at least 2015."
Experts at the firm highlight the progress that firms like Nautical Petroleum have made towards bringing heavy oil fields into production. Advances in technology are encouraging investment in North Sea fields.
"Following the successes of Statoil, Xcite Energy and Nautical Petroleum in heavy oil, we would expect these types of projects to become more attractive throughout the region," said Seymour Pierce.
"The fiscal terms for such projects will also improve project commerciality and hopefully reduce the decline in oil production from the UK sector."
Seymour Pierce includes Xcite Energy on a list of top picks among sector stocks. Xcite Energy hopes to start production from the Bentley heavy oil field east of Shetland. Shares in the firm fell 20% on December 1 when Xcite announced revised plans for Bentley under which it expected to achieve commercial production in 2013.
In December 2010, the company said it expected first stage production in 2011.
Ahead of the expected start of development drilling on Bentley this month, Seymour Pierce said: "Are we about to see resurgence in this stock? We think so, but it may prove to be another turbulent year for investors should initial drilling results fail to deliver." Seymour Pierce note that the Norwegian North Sea is seeing increased activity from a number of AIM listed exploration and production firms that are looking to exploit the "attractive fiscal terms" offered by the country's government.
For example companies can recover 78% of the costs of exploration drilling the year after they are incurred.
Seymour Pierce said Aberdeen-based Faroe Petroleum had concluded what looked like attractive deals in both Norwegian and UK waters.
Last year the company traded a stake in a Norwegian oil discovery for interests in producing fields which will generate cash to help fund its active drilling programme.
However, news yesterday that the company had suffered a drilling setback off Norway sent Faroe Petroleum shares tumbling 3%. 5p to 165p.
Faroe said a well on the Kalvklumpen prospect was dry. The firm's chief executive Graham Stewart said: "While the results for the Kalvklumpen well are disappointing, the data acquired will be now be applied to evaluate and de-risk further prospects within this and the adjacent licences held by the Company in this prospective area".
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