POOR weather and high costs have been cited as a report found drilling and deal activity in the North Sea dropped in the opening quarter of the year.

Twelve exploration and exploration wells were drilled in the UK Continental Shelf in the first three months of the year, five more than in the fourth quarter of 2013 but one fewer than the same quarter last year.

The research, from Deloitte's Petroleum Services Group (PSG), also pointed to a decline in deal-making, which the accountant linked to higher operating costs and a gap between the price expectations of sellers and buyers. The report found 10 deals were concluded in the first quarter, down from 19 a year ago and eight fewer than in the final quarter of 2013.

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Deloitte noted that farm-ins, which involves companies acquiring interests in another firm's fields was he most common type of deal. Farm-ins help operators spread costs and risk.

Graham Sadler, managing director of Deloitte's PSG, said: "It is very likely that what we're seeing is a result of the continuing higher operating costs and the ongoing challenges of a mature region. These could be having a knock-on effect on deal flow, since sellers might be seeking a higher price than buyers might be willing to pay.

"When profitable extraction is more challenging for operators, farm-ins are the most popular type of deal."

Mr Sadler said the caution shown by operators was reflected by the fact just two gas fields starting production over the quarter, with one condensate field approved for development.

He said government incentives "may be the only way to make the economics more viable."