THE UK North Sea is the most attractive basin in the world for oil and gas firms that want to develop big offshore projects on a key measure, experts have concluded.

Rystad Energy said the tax breaks provided in the UK mean firms can achieve better returns on investment in large scale field developments in the North Sea than in any other comparable basin.

The consultancy puts the UK at the top of the global rankings ahead of a range of countries that appear to have generated more excitement in recent years.

Kuwait ranks second, followed by Canada and the USA. Norway, whose waters include a large share of the North Sea, does not make it into the top 10.

The analysis will provide encouragement to hard-pressed firms in the North Sea, which is being hammered by the fallout from the Covid-19 coronavirus crisis.

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The resulting plunge in oil prices prompted firms to slash investment in new projects around the world.

However, Rystad reckons investment in offshore projects will increase by around 25 per cent globally this year amid expectations that coronavirus vaccines will fuel a recovery in the global economy.

Rystad said: “This year marks the beginning of a recovery after a disappointing 2020, when the Covid-19 pandemic caused sanctioning of offshore projects to dip to $44 billion from $99bn the year before.”

It reckons the value of projects that win approval will rebound to at least $56bn globally in 2021, and rise as high as $131bn in 2023.

The UK North Sea will face intense competition for investment from other areas. It is seen as a relatively challenging area in which to operate compared to basins in which waters are shallower and the weather is kinder.

The Herald: Rates of return achievable on a project like the giant Johan Carstberg development off Norway under different tax regimes Source: Rystad EnergyRates of return achievable on a project like the giant Johan Carstberg development off Norway under different tax regimes Source: Rystad Energy

“Operators are now even more focused on costs and profit margins, and majors are expected to concentrate their individual activity to fewer countries than before,” said Rystad.

“This means the world’s resource-rich countries will have to compete more than ever to attract investments.”

However, the Rystad analysis suggests the UK North Sea may be better prepared for that competition than is recognised although it is regarded as a relatively costly basin in which to work.

The analysis may help revive hopes that there could be a boom in the under-explored West of Shetland area in coming years.

READ MORE: West of Shetland remains 'world class opportunity' amid slump

It highlights the importance of tax reforms introduced amid the downturn that followed the plunge in oil prices from 2014 to 2016. These allow firms to retain a bigger share of the profits they make in UK waters than they can in other areas.

Norway ranks 18th in the table compiled by Rystad, which has headquarters in that country.

Rystad also highlighted the relative simplicity of the tax system in the UK.

The study did not cover onshore oil and gas areas such as the shale fields in the USA.

Onshore developments cost less than offshore schemes and can be completed more cheaply.

A range of big US firms, such as Chevron and Marathon, have sold UK North Sea portfolios in recent years to free up funds to invest in their home country.

READ MORE: North Sea shake up to continue after US giant sells portfolio

While the outlook for oil prices remains uncertain, market conditions have improved following coronavirus vaccine successes and moves by major exporters to curb production to support the market.

Brent crude sold for around $55 per barrel yesterday.

The price fell from around $70/bbl in January last year to an 18-year-low of less than $20/bbl in April.

The Rystad analysis found that if an oil and gas firm completed a qualifying project in UK waters it could expect to generate a return of $11.1 per barrel oil equivalent with Brent at $70/bbl . That compares with returns of $11/boe and $8/boe respectively for comparable projects off Kuwait and the USA and $3.9 per boe for an overseas firm completing one off Norway.

West of Shetland has generated excitement in the industry amid expectations that firms could generate attractive returns from investing in big offshore finds made in the area. Other parts of the wider North Sea have received much more attention in the 50 years since the discovery of the giant Forties field helped put the North Sea on the map for big players.

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Majors such as BP and Royal Dutch Shell have focused UK offshore investment on big developments West of Shetland such as Clair Ridge and the revamp of Schiehallion in recent years after selling off a range of mature assets they decided were non core.