On the surface, the North Sea appears to be a paradox. In one sense there is much happening. At the same time, this has the effect of reducing activity on another front. Equally, while we're seeing record investment into the basin, exploration and appraisal (E&A) activity, as well as tax receipts, are at low levels.

That fact is evidenced in the latest quarterly report into North Sea activity from our Petroleum Services Group (PSG), covering April until the end of June of this year.

The report shows that drilling has dropped significantly compared to both last quarter and year-on-year. It indicated there were just seven E&A wells drilled on the UK continental shelf (UKCS) in Q2 2014. A year ago there were 17, and in the first three months of 2014 there were 12.

In terms of deals, it's a similar story. There were five deals announced between April and June, compared with 10 transactions in Q1 and 12 during the equivalent period in 2013. This is mostly accounted for by the big drops in the number of farm-in type deals registered in the last three months.

What does this all mean? Well there are two areas to look at. The first is cost. In my last blog on North Sea activity, I compared North Sea oil and gas to whisky. That was largely predicated on the fact that both become more expensive as they age.

This quarter, the analogy remains true. Costs are still very high, largely due to the maturity of the region. As a result, cost control remains a significant challenge for the industry.

That's reflected in asset prices too. Although there are a large number of assets on sale at the moment, the vendors tend to be larger players. The buyers, meanwhile, are mostly smaller operators with limited budget. That's creating an expectation gap in prices.

While the situation can't stay that way forever, it will take some time to change. As a result, I predict that deal activity will remain muted in the short to medium term.

The second area is change in the industry. The last few months have seen many new developments for the North Sea. It started with the Wood Review, which was widely welcomed and whose recommendations are starting to be discussed by the industry, while we're also on the brink of seeing the introduction of a new regulator – the Oil and Gas Authority.

On top of that, in his most recent Budget the Chancellor announced a review of the fiscal regime, along with the introduction of changes to how some rig owners are taxed on their leasing arrangements.

All of this gives the industry a great deal to chew over. The fiscal regime, in particular, bears heavily on all oil and gas firm's plans, especially as tax rates can reach as high as 81%.

Until we have more clarity over the fiscal regime, and there is more understanding of what impact the Oil and Gas Authority will have, companies are likely to be cautious around any big investment decisions.

Undoubtedly, there are a number of factors at play in the industry. What I've provided here are just two predictions for the next six months.

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