As we approach the first anniversary of Russia’s invasion of Ukraine, it is a further reminder that energy security will continue to have a major impact on oil and gas markets and how nations meet their energy requirements.

Fiscal stability is paramount if international investors are to be persuaded to commit to the UK energy sector and so help improve our energy security. The government has to recognise that when prioritising future investments, decision makers are horizon scanning over the next 10-15-20 years, therefore perceived instability weakens the appeal of both renewables and hydrocarbon projects.

There is widespread recognition that UKCS oil and gas extraction needs to be done in a responsible and accountable way, with environmental concerns front and centre. It is accepted there should be some contribution from the industry but there is a careful balance to be struck when creating a long-term sustainable energy policy.

Renewables will in time become the dominant source of our energy output, but oil and gas need to be at the heart of any policy until that stage is reached, and encouraging responsible long-term investment in both sectors is an important consideration for policy makers.

Despite some of the economic headwinds and significant volatility the sector faced in 2022, there remains a good appetite to invest in oil and gas and a broader range of funds are coming back into the fold because of three factors - the importance of establishing energy security; the industry appears to be addressing ESG concerns; and the potential returns are much more positive this year compared to many other sectors.

The last decade has seen an acceleration of majors "pruning” or exiting their North Sea portfolios and independent oil and gas companies taking over as the leading players in the basin. A classic example is Ithaca Energy which has deployed an excellent “buy and build” strategy over that period, making a number of well-considered, transformational acquisitions to become one of the leading operators in the UKCS.

Pinsent Masons has advised Ithaca throughout this period, including its recent listing on the main London Stock Exchange. The largest UK IPO of 2022, this listing not only underlined the market confidence in Ithaca’s innovative management team, but also illustrates that the institutional investors are coming back into oil and gas and that the capital markets are selectively open for quality businesses.

Scotland’s oil and gas services companies have traditionally grown-in organically through M&A and with the continuing pivot from pure oil and gas services to energy services and embracing the many opportunities arising from an adolescent renewables sector, logically there should be a reasonable amount of acquisition activity in 2023.

The oil price may cool a little in 2023 but it will stay comparatively high compared to what we have experienced in the last five years which will encourage deal activity. The transferability of skills to the offshore renewables sector will make innovative and flexible service companies an attractive proposition and worthwhile investment. What is certain is that the volatility seen in 2022 in the commodity markets is here to stay for some time.