A minnow that alerted big fish to the potential of prospects in the North Sea has said the UK must encourage further exploration in the area for the sake of energy security, jobs and the environment.

Deltic Energy helped revive interest in the North Sea after persuading Shell and the former Cairn Energy to buy into acreage which it recognised had potential that others had missed.

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As the firms prepare to enter a crucial period in their exploration campaigns, Deltic chief executive Graham Swindells sald the value of the North Sea has been underlined by the fallout from the Ukraine war. This has resulted in a fresh surge in energy prices which Mr Swindells noted is posing big challenges for consumers and businesses alike.

By increasing domestic output the UK could reduce its reliance on production from overseas, at a time when global competition for supplies is intensifying. As well as helping to relieve some of the pressure on prices, an increase in UK production could help to displace supplies that would entail higher emissions and provide a spur to industrial activity in the process.

The Herald: Deltic Energy chief executive Graham SwindellsDeltic Energy chief executive Graham Swindells

“Recent events mean that energy security has never felt more important,” said Mr Swindells. “Soaring energy prices with its impact on energy intensive industry and households alike has acutely highlighted the consequences of having domestic production.”

He added: “There is heavy dependence on imports from foreign countries, including Russia. The effect of this reliance is compounded when considering the significantly higher emissions associated with gas imported in the form of LNG. It is abundantly clear that a secure supply of domestically produced oil and gas is much better for jobs, the UK economy and, importantly, the environment. Accordingly, it is imperative that the UK continues to encourage further exploration. ”

Exploration drilling fell to a record low last year in the UK North Sea amid the slump triggered by the pandemic.

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Deltic has generated significant interest in the industry although it is a relatively small player, with a stock market capitalisation of around £40 million.

Formerly known as Cluff Natural Resources, Deltic decided to focus on North Sea exploration after dropping plans to produce gas by burning coal under the Forth, which ran into opposition. The company turned heads in 2019 when Shell decided to buy into acreage containing two big prospects.

Mr Swindells made his comments in Deltic’s results for 2021, which he described as a year of significant achievement and continued progress for the company.

The Herald: Deltic Energy chief operating officer Andrew Nunn, left, with subsurface team lead Tom CafferkeyDeltic Energy chief operating officer Andrew Nunn, left, with subsurface team lead Tom Cafferkey

In March last year Shell decided to proceed with plans to drill a well with Deltic on the Pensacola prospect, which Mr Swindells described as “one of the highest impact exploration targets to be drilled in the gas basin in recent years”. The well will be Deltic’s first. It is scheduled to be drilled in the third quarter of this year.

Mr Swindells also highlighted the potential impact of the deal struck in August with Cairn, which changed its name to Capricorn Energy in December.

He said the deal, under which Cairn bought into five licences, would see significant investment being made across Deltic’s strategic North Sea gas exploration portfolio. Deltic and Capricorn are awaiting the results of seismic survey work done on a licence that contains several prospects. They may make a drilling decision in the third quarter.

Mr Swindells welcomed signs of increased interest in the Dewar oil prospect following crude price rises. Deltic’s efforts to recruit a partner to farm in to Dewar were complicated by the downturn triggered by the pandemic.

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The company lost £1.9m last year, against £1.7m in 2020. It had £10m cash at the year end and no debt.

Shares in the firm closed down 0.25p at 2.75p.

David Round at Deltic’s joint house broker Stifel wrote in a note: “Events in recent months have provided a timely reminder of the importance of gas within the UK's energy mix and Deltic has put itself into a strong position.”

Shell and Capricorn Energy have market capitalisations of around £164 billion and £0.64bn respectively.

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Last week a leading North Sea gas producer, Serica Energy, said the tragic events in Ukraine had underscored the importance of the UK’s domestic resources and called for firms to be encouraged to maximise their potential.