The once-thriving UK North Sea oil and fuel province survived 2025, probably the most tough yr for the reason that Sixties when hydrocarbons have been first found within the basin.
Oil and fuel manufacturing from the mature fields continued to say no final yr, whereas uncertainties elevated as trade anticipated adjustments to the UK authorities’s coverage that locations an infinite tax burden on operators with out incentives or funding allowances. Firms lively within the UK offshore oil and fuel sector decreased investments and froze plans within the face of heightened uncertainty.
With the pullback in funding and the federal government’s reluctance to award new licenses, exploration within the UK North Sea plunged to an all-time low. As a result of unpredictable fiscal insurance policies, 2025 turned the primary yr since 1960 with out a single exploration properly in Britain’s offshore, consultancy Wooden Mackenzie has warned.
Windfall Tax Suppresses Funding
The UK oil and fuel trade obtained readability on the finish of 2025 concerning the fiscal regime that it was awaiting for greater than six months.
The federal government eliminated a lot of the uncertainty with the Autumn Price range in November. But it surely left the windfall tax unchanged as-is till 2030—opposite to the pleas and warnings from the sector that the overall tax fee, together with the windfall tax, of 78% and no incentives or allowances would basically tax the trade and its provide chain to dying.
In actual fact, the one certainty that the trade obtained was that the punitive tax, formally often known as Vitality Income Levy (EPL), stays till the tip of the last decade. For 2025, the levy was triggered by oil costs above $76 per barrel or pure fuel costs 59 pence per therm. Oil costs have been largely beneath the brink, however fuel costs have remained above 59p a therm, which triggers the 35% windfall tax on earnings.
Final yr was horrible for the UK North Sea. Trade sentiment is that the horrible years aren’t over and an accelerated decline in funding and exploration would kill the trade and enhance Britain’s want for oil and fuel imports, exposing one in every of Europe’s prime economies much more to the risky worldwide oil, fuel, and LNG markets.
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The windfall tax, first launched by a Conservative authorities on the peak of the 2022 vitality disaster and now prolonged below Labour, would wipe out all non-essential funding within the UK shelf, as it might compete with friendlier tax jurisdictions, in response to WoodMac.
“The federal government turned down £50 billion of funding for the UK and the possibility to guard the roles and industries that hold this nation operating,” Offshore Energies UK chief government, David Whitehouse, stated in response to the choice to maintain the windfall tax as-is.
“As an alternative, they’ve chosen a path that may see 1,000 jobs proceed to be misplaced each month, extra vitality imports and a contagion throughout provide chains and our industrial heartlands,” Whitehouse added.
The Aberdeen & Grampian Chamber of Commerce stated it’s “Lights out for North Sea oil and fuel as Chancellor retains windfall tax.”
The Chamber’s chief government, Russell Borthwick, commented that as an alternative of heeding recommendation from trade, “the UK Authorities has as an alternative opted for a cliff-edge finish to North Sea manufacturing and to tax the trade to dying inside 5 years. Jobs can be misplaced of their hundreds as a direct results of this authorities’s failure to behave.”
The levy has prompted many corporations to halt funding within the UK and transfer to chop workforce numbers lately.
The most recent announcement got here from one of many prime impartial producers, Harbour Vitality, which final month stated it expects to cut back worker numbers by one other 100, on prime of 600 jobs already eradicated since 2023.
Harbour Vitality’s chief government, Linda Cook dinner, advised the Monetary Occasions on the finish of December that the UK is “the worst of the fiscal environments amongst all of the international locations that [we] function in.”
Because of the fiscal regime, the UK trade is compelled to compete with different jurisdictions with “one arm tied behind its again”, Cook dinner advised FT.
Survival of the Fittest Mergers
Within the unfriendly fiscal environments, operators within the UK North Sea are resorting to different options to spice up earnings and create worth for shareholders. Mergers have develop into the commonest of those options because the trade consolidates to deal with the punitive tax fee.
Final month, Harbour Vitality introduced an acquisition within the UK North Sea because the trade seeks to climate the crippling results of the UK windfall tax.
“This transaction is a crucial step for Harbour within the UK North Sea, constructing on the motion we’ve already taken to maintain our place within the basin given the continued fiscal and regulatory challenges,” stated Scott Barr, Managing Director of Harbour’s UK Enterprise Unit, commenting on the deal to purchase Waldorf Vitality Companions Ltd and Waldorf Manufacturing Ltd, at present in administration, for $170 million.
Harbour Vitality turned the most recent operator within the UK to announce acquisitions, following the launch of the 50/50 three way partnership of Shell and Equinor, which mixed their offshore UK oil and fuel operations in a brand new firm, Adura. Earlier in December, French supermajor TotalEnergies stated it might merge its upstream UK enterprise with NEO NEXT to create the most important impartial oil and fuel producer in Britain, NEO NEXT+.
Analysts count on the consolidation drive to proceed, whereas the trade continues to name on the federal government to reform the fiscal regime.
“Restoring North Sea funding doesn’t imply abandoning local weather commitments; it’s essential to safeguard jobs, stabilise the economic system, and keep a bridge to a cleaner vitality future,” UK’s vitality and chemical compounds group Ineos, which has halted UK investments, stated final month.
“How can companies put money into that future if they’re being pushed to spoil?”
By Tsvetana Paraskova for Oilprice.com
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