The UK Government’s Budget has revealed a shift in its North Sea oil and gas licensing policy, permitting some oil and gas production on or near existing fields and infrastructure.
This decision on North Sea oil and gas licensing comes as the government maintains its windfall tax regime on the sector, disappointing producers hoping for early relief.
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The Department for Energy Security and Net Zero (DESNZ) stated on Wednesday that new oil and gas licences can now be issued if they do not require new exploration and are connected to current fields or infrastructure.
This policy change marks a partial easing of the previous stance, especially in light of the Labour Government’s campaign pledge to halt new oil and gas licensing in pursuit of net-zero targets, reported Reuters.
Despite this adjustment, the government confirmed in its latest budget that there will be no changes to the existing tax framework for oil and gas producers. The current regime includes a 38% windfall levy when prices exceed government-set thresholds, resulting in a total tax burden of up to 78% for operators in such circumstances. This Energy Profits Levy (EPL) is scheduled to expire in March 2030.
Industry leaders have expressed concern over the continued windfall tax.
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By GlobalDataOffshore Energies UK CEO David Whitehouse said: “The future of North Sea energy depends on investment, which won’t come without urgent reform of the windfall tax. If the levy stays in place beyond 2026, projects will stall and jobs will vanish, no matter how pragmatic licensing policy becomes.”
Harbour Energy, a North Sea-focused producer, voiced disappointment at the government’s announcement. The EPL was introduced more than three years ago by the previous Conservative Government following Russia’s invasion of Ukraine, which caused a spike in global energy prices. Although prices have since moderated, the tax has remained and even increased to support government revenues.
The North Sea Transition Authority (NSTA) reported that UK oil and gas output has declined from around 4.4 million barrels of oil equivalent per day (mboe/d) at the start of the millennium to roughly 1mboe/d currently, with projections of a drop below 150,000 barrels of oil equivalent per day by 2050. Many producers, facing mature field declines, have reconsidered their UK operations, opting to sell, merge or scale back activities.
Offshore Energies UK released a statistical analysis showing that reforming the EPL in 2026, rather than waiting until 2030, could raise tax receipts by £15.7bn ($20.7bn) to £48.6bn within ten years.
It warned: “Delaying reform until 2030 will accelerate the decline of North Sea production, with output forecast to fall by 40% by 2030 unless action is taken. This would result in the loss of 1,000 jobs per month, increased reliance on imports, and a shrinking national tax base from domestic oil and gas production.”
Under the government’s new North Sea Future Plan, Transitional Energy Certificates will be introduced to enable companies to continue to drill for oil and gas at existing fields. The plan emphasises that this drilling should not involve new exploration.
Additionally, the government has committed £20m to establish a North Sea Jobs Service to support workers and local communities.
