UK North Sea Review

The UK’s government plans to further raise the energy profits levy, acquisitions of offshore portfolios, new drilling, and a number of new contracts featured in the UK North Sea oil and gas industry in the past month.

The UK’s Chancellor of the Exchequer, Rachel Reeves, has confirmed plans for the Energy Profits Levy to be extended one year to 31 March 2030, have its investment allowances tightened, and to increase the rate of the levy by three percentage points to 38 percent from 1 November 2024.

A call for evidence confirming the government’s intention to take action on the carried interest loophole has also been published, as well as a commitment to update on policies at the Budget to help close the tax gap further, the UK government said.     

The headline tax rate for the sector would rise to 78 percent, one of the world’s highest, while the EPL’s investment allowance will be removed and further reductions in capital allowances could be introduced.

Industry reacted to the plans for further increases in the so-called windfall tax, saying that the high tax rates would undermine investments in the UK offshore industry that could threaten the future energy security and net-zero investments.
 
“I hope the government do something sensible rather than cast a wrecking ball across the North Sea,” David Latin, chief executive of North Sea producer Serica Energy, said in response to the planned tax hike.
 
Offshore Energies UK chief executive David Whitehouse commented,

“This is not partnership working between government and industry. These announcements have been made without meaningful engagement with this sector.”

“The offshore energy sector supports over 200,000 jobs. These are real people, working in our energy industry today. Today’s announcement jeopardises jobs in communities across the UK. This is something the Prime Minister committed in his manifesto not to do,” Whitehouse said.

“Announcements like this without engagement is no way to treat these hard-working people.”

OEUK has also called on the government to now honour its pre-election promises to meet and discuss the way forward so the UK can achieve the homegrown energy transition, set out by the industry’s manifesto.

The industry remains concerned about the impact of wider proposals for a further windfall tax and an end to new oil and gas licences, OEUK said.

Offshore Energies UK has also said that the UK’s offshore energy industry is on-track to meet its own climate goals and is not slowing down. OEUK is leading calls to create the positive and stable investment environment needed to achieve a homegrown energy transition that everyone wants to see.

In 2022, the UK’s oil and gas sector reduced production emissions by 24 percent, halved flaring and venting, and cut methane emissions by 45 percent compared to 2018. This means the sector achieved its interim target – a reduction of 10 percent by 2025 – three years early.

“Further emission reductions will be achieved with the help of major capital projects, like carbon capture, floating wind and hydrogen,” OEUK’s Whitehouse said.

The North Sea Transition Authority (NSTA) said in its latest UKCS Decommissioning Cost and Performance Update 2024 that the North Sea oil and gas industry is forecast to spend £24 billion on decommissioning between 2023 and 2032.

This is £3 billion higher compared with the forecast for the same period in last year’s report. More than half of the overall estimate of £40 billion (in constant 2021 prices) is to be spent during this 10-year period, which shows near-term actions will set the direction for the sector, NSTA said.

Hundreds of wells will need to be decommissioned every year as more oil and gas fields shut down. However, operators only achieved 70 percent of planned well decommissioning activities last year, the regulator warned.

The industry must take action on well decommissioning to support the UK’s supply chain, clean up their oil and gas legacy, and stop costs spiralling, NSTA noted.
 
“With spending forecast to peak at £2.5bn per year in the current decade, decommissioning can ensure that the UK’s world-leading supply chain is equipped to help operators clean up their oil and gas infrastructure over the next 50 years and support the carbon storage sector, which will rely on many of the same resources,” said Pauline Innes, the NSTA’s Supply Chain and Decommissioning Director.

“I am concerned that this huge opportunity to safeguard highly-skilled jobs and support the transition will be wasted if operators fail to tackle their well decommissioning backlogs. The supply chain wants to do this work, but it is not physically tied to the UK,” Innes said.

“Its skills and resources are in demand in other regions, and we are starting to see companies marketing their rigs elsewhere. Operators need to use the supply chain, now, or risk losing it.”

In a separate report, NSTA said that top-quality environmental, social, and governance (ESG) disclosure is crucial to attracting further investment into the UK’s oil and gas industry.

Many of the 29 licensees analysed by the NSTA are following good practice across key areas of ESG reporting and are on the right track, though there is still plenty of room for improvement.
 
“ESG reporting is no longer a ‘nice to have’ extra, it is crucial to attracting and maintaining investment. The principle of ‘No ESG disclosure, no access to finance’ is truer now than ever before,” Joanne Edgeler, Head of Licensee Governance and ESG, said.

A report by the National Engineering Policy Centre found the UK would need additional baseload power, and new nuclear plants will not be ready in time.

“The government’s commitment for a strategic reserve of unabated gas capacity is therefore a crucial aspect of ensuring security of supply,” the report says.

“Policy will need to ensure that short-term signals do not encourage existing gas-fired capacity to close down while still needed, extending the life of some, where possible.”

In company news, independent UK firm Viaro Energy signed an agreement to take over Shell and ExxonMobil’s UK Southern North Sea assets. Under the terms of the deal, Viaro Energy will assume full ownership of one of the largest and longest producing gas asset portfolios in the UKCS, including high-quality, well-maintained production facilities and the Bacton gas receiving terminal.

Pending regulatory approval, Viaro will buy a portfolio consisting of 11 operated offshore assets and one exploration field (Shamrock; Caravel; Corvette; Brigantine; Leman; Galleon; Skiff; Carrack Main, Cutter, Carrack East; Barque; and Clipper), all tying back to the Shell-operated onshore Bacton Gas Processing Terminal via the Leman and Clipper fields.

The deal more than doubles Viaro’s producing portfolio and reaffirms long-term commitment to UKCS North Sea, thanks to access to producing operated fields, where 2023 production was equal to about 5 percent of UK total gas production, and to significant growth potential through identified near field exploration opportunities.  

Shell U.K. Ltd, the operator of Licence P2437, has informed its project partner Deltic Energy Plc that drilling operations on the Selene exploration well have commenced. The Valaris 123 drilling unit is carrying out the drilling operations, which are planned to last approximately 90 days.  

Harbour Energy, the biggest producer in the UKCS, said in its half-year results report that it had made significant progress towards completing the Wintershall Dea acquisition, which is now expected early in the fourth quarter of the year.  

“The acquisition will transform the scale, geographical diversity and longevity of our portfolio and strengthen our capital structure enabling us to deliver enhanced shareholder returns over the long run while also positioning us for further opportunities,” CEO Linda Cook said.

SLB has been awarded an integrated engineering, procurement, construction and installation (EPCI) contract by bp to its OneSubsea joint venture and Subsea7 for the Murlach development (formerly Skua field), 240 kilometres east of Aberdeen in the UK North Sea.

The Murlach project will include the first-ever implementation of SLB OneSubsea standard, configurable vertical monobore tree systems in the UK North Sea, which will be deployed by Subsea7 via vessel to reduce rig days.

Independent energy group Parkmead announced that further to the provisional award of three blocks as part of the 33rd UK offshore licensing round, the P2634 licence has now been formally awarded to Parkmead by the NSTA. The licence is situated in the Outer Moray Firth. Parkmead as operator with a 50-percent interest, together with its joint venture partner Orcadian Energy with 50 percent interest, will use the expertise gained in developing challenging crudes to work towards commercialisation of Fynn Beauly, one of the UK’s largest undeveloped discoveries. This heavy oil accumulation has been proven by three wells and is estimated to contain oil-in-place of between 740 million and 1.33 billion barrels, Parkmead said.

Aberdeen-headquartered Proserv has successfully completed a sponsor-backed management buyout (MBO), and is introducing an employee ownership scheme.

Led by CEO Davis Larssen and CFO Mark Fraser, the multi-million pound deal was backed by GIIL, a UK-based investment vehicle of Glenn Inniss, the founder and owner of the GII Finance Group.

“Mark and I are thrilled to embark on this new chapter with GIIL’s strategic alignment as we progress on our journey to becoming the energy sector’s leading independent controls technology partner of choice,” Proserv CEO Davis Larssen said.
 
“We currently have approximately 50% market share in providing leading-edge subsea control systems in the North Sea and the Gulf of Mexico.”

Engineering and services company Kent has been awarded a global three-year enterprise framework agreement by Shell to provide Commissioning and Start-Up Services (CSU) across various onshore and offshore projects. The contract encompasses a wide range of energy sectors, including oil, gas, and new energy initiatives.   

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