OIL and gas heavyweight Neptune Energy has said it still sees plenty of potential in the UK North Sea although it has scrapped plans for a big acquisition in the area.

Neptune announced yesterday that it had pulled out of a deal worth up to $280 million (£230m) to buy a significant North Sea portfolio following the oil price plunge triggered by the coronavirus.

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The deal would have given Neptune control of the North Sea assets amassed by Italy’s Edison.

Private equity backed Neptune did not elaborate on the reasons for the decision yesterday.

However, it follows a dramatic change in market conditions that has caused alarm in the North Sea.

When the deal was agreed in October the North Sea industry appeared to be established on the road to recovery from the downturn that followed the sharp fall in oil prices between 2014 and 2016.

Oil and gas prices have plunged again since March following the slump in demand triggered by the coronavirus pandemic.

Prices have rallied in recent days following big cuts in production by major exporters and moves to ease lockdowns in some countries.

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However, Brent crude is still selling for around half what it fetched in January.

The fall in commodity prices has impacted on the valuation of oil and gas assets.

With the outlook for the market very uncertain, Neptune may have been reluctant to buy a portfolio it would have had to spend a lot of money on.

The portfolio contains a 25 per cent interest in the giant Glengorm find that was made in January last year.

The logistical challenges posed by the coronavirus for firms that operate North Sea fields may also have been a factor in its thinking.

The decision to pull out of the deal will be greeted with dismay in the North Sea.

Demand for North Sea assets appears to be waning after a period in which a range of firms appeared keen to expand in the area through acquisition.

Neptune won backing from international financiers for a rapid growth push that featured big North Sea deals.

Sector watchers have said mergers and acquisition activity could stimulate activity in the North Sea by putting assets in the hands of firms that are more likely to invest in them than their previous owners.

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Last week Premier Oil revealed that it was seeking a reduction in the prices of two big North Sea assets it agreed to acquire from BP for $625m in January.

However, a spokesperson for Neptune said the company remained committed to the North Sea.

“Both the UK and Norway are very much core to the business going forward and we have got exciting development opportunities across Europe,” said the spokesperson.

Neptune has a stake in giant Cygnus gas field, which it acquired with a £3.9bn portfolio bought from French utility Engie in 2017.

Neptune’s UK managing director Alexandra Thomas last month described Cygnus as a cornerstone asset. She said the field held significant potential to be further developed as a major hub.

The same month Neptune announced plans to cut costs by up to $400 million around the world this year without saying how the plan would impact on the North Sea business. Neptune employs around 200 people in the UK.

In March last year Neptune approved plans to develop the Seagull field on acreage it acquired from America’s Apache.

Neptune had agreed to acquire the Edison North Sea portfolio from Energean. It will pay Energean a $5m fee following the termination of the agreement.

The deal Energean agreed with Neptune involved it selling on part of a bigger portfolio that it agreed in July last year to buy from Edison for up to $850m.

Energean said it is in talks with Edison about a possible amendment to the deal.

Edison’s Norwegian subsidiary may now be excluded from the deal.

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Energean said it planned to retain the UK subsidiaries. These own a 25% interest in the Glengorm discovery and 10% stake in the Isabella find made by Neptune in March.

Energean had focused on the Mediterranean before striking the deal with Edison.