UK conditions for North Sea oil and gas eroding output potential: OEUK

Punitive taxation and restrictive regulation are eating into projections of future UK oil and gas output, with the number of wells drilled now barely a tenth of peak levels in 2000-2008, industry association Offshore Energies UK said March 25.

Production of oil and gas may get a modest boost in 2025 and 2026 thanks to new fields coming on stream this year, OEUK's annual Business Outlook document said, referring to projects such as Shell's Penguins oil field, which started up in February, and BP's Murlach oil and gas project, also due on stream this year.

Murlach is one of the numerous modest-sized fields that feed flows of the UK's benchmark North Sea crudes, used in the Platts Dated Brent price assessment.

UK upstream investment exceeded expectations in 2024 at GBP6 billion ($7.8 billion) – roughly GBP1.5 billion-2 billion higher than forecast, OEUK said.

But oil output declined by 11% two years in a row in 2023 and 2024, with crude output averaging 564,000 b/d last year. And production projections have been steadily reduced by regulator the North Sea Transition Authority, OEUK said.

For the period 2025-50, the projected total oil and gas production from UK waters has been cut by more than 300 million mt of oil equivalent to 555 million mtoe since 2021, OEUK said.

Protracted technical issues at the Triton Floating Production Storage and Offloading vessel, flagged in a statement from partner company Serica Energy on March 19, may further dent near-term projections of UK oil output.

"Operators overwhelmingly view the UK continental shelf as uncompetitive for investment ... especially compared to overseas opportunities [and] in comparison to offshore wind and carbon capture and storage," OEUK said.

It argued that given more favorable taxation and regulation, annual decline in UK hydrocarbon output could be limited to 6%, and an additional 3 billion barrels of oil equivalent of production could be unlocked up to 2050, but this "would require a strong alignment and collective commitment across the government and industry."

Constrained sector

Current constraints on the sector include a government moratorium on the issuance of new North Sea licenses, while the regime for issuing environmental approvals is under review due to recent successful court challenges against the Rosebank and Jackdaw projects. On the fiscal side, the industry has repeatedly decried tax rates as prohibitively high.

"As we work together to accelerate renewables, the UK must make the most of its own oil and gas — or choose to increase reliance on imports," OEUK CEO David Whitehouse said. "We're fully engaged with asking policymakers to choose a pragmatic path to the low-carbon, high-growth and secure economy we all want to see."

With a number of North Sea oil and gas projects on hold, the net rate of return for offshore operators was minus 1% on average in the 12 months to June 2024, OEUK said, citing data from the Office for National Statistics. "Such poor performance further illustrates the need for reform to increase certainty for investors, to improve on the current investment climate and drive growth," OEUK said.

OEUK added that with more than 40% of UK energy consumption supplied from overseas, eliminating LNG imports should be a government priority. It pointed to emissions reduction goals and the higher emissions usually attributed to LNG versus gas supplied by pipeline.

Dated Brent was assessed by Platts, part of S&P Global Commodity Insights, at $73.93/b on March 24.