North Sea Oil and Gas: Current Realities and Future Outlook
U.S. President Donald Trump recently asserted that the United Kingdom possesses enough oil reserves in the North Sea to last five centuries, attributing the nation’s elevated energy costs to a reluctance to pursue further drilling. In reality, the North Sea’s oil and gas industry has been experiencing a marked and sustained downturn, primarily due to the maturity of its oil fields. Production has dropped significantly since its early 2000s peak. According to the North Sea Transition Authority (NSTA), the UK’s energy regulator, there were approximately 2.9 billion barrels of oil equivalent remaining at the end of 2024—enough for only a few decades, not hundreds of years as claimed.
Industry analysts at Wood Mackenzie predict that this year may mark the last time UK North Sea output exceeds 1 million barrels of oil equivalent per day (boe/d).
The ongoing decline in North Sea production has resulted in less investment, job reductions, and a growing dependence on imported energy for the UK, despite ongoing efforts to transition to cleaner sources. High taxation and regulatory uncertainty—especially the Energy Profits Levy—have discouraged new developments, prompted industry consolidation, and shifted attention toward offshore wind projects. The UK’s Energy Profits Levy (EPL) is a temporary windfall tax introduced in 2022, imposing a 78% rate on extraordinary profits from oil and gas producers. The EPL is scheduled to conclude by March 2030, after which a permanent Oil and Gas Price Mechanism (OGPM) will take effect, levying a 35% charge when prices surpass certain thresholds, such as $90 per barrel for oil and 90p/therm for gas. The EPL has been a contentious issue, with industry leaders warning of its negative impact on investment.
A recent analysis by Wood Mackenzie suggests that by 2026, the North Sea’s upstream oil and gas sector will be defined by reduced investment (especially in the UK), ongoing mergers and acquisitions, diverging trends between Norway and the UK, persistent energy transition pressures, and a heightened emphasis on capital discipline and operational efficiency.
Five Major Trends for North Sea Upstream in 2026
1. Contrasting Investment and Activity Levels
Overall investment in North Sea upstream operations is expected to fall in 2026, with UK spending dropping below $3.5 billion—the lowest in real terms since the 1970s. Conversely, Norway is set to maintain robust investment, with around $20 billion allocated to development, focusing on rapidly launching major projects to sustain production and support European gas security. The UK’s decline is attributed to challenging fiscal and regulatory conditions, while Norway’s stable policies and strong project pipeline provide a more favorable environment.
2. Ongoing Mergers, Acquisitions, and Corporate Restructuring
Market uncertainty is likely to fuel further consolidation, particularly in the UK, where financially stronger companies are expected to acquire non-core assets and benefit from tax advantages and decommissioning relief. In Norway, deal activity is anticipated to be more limited and focused on smaller assets. New business models and strategic partnerships, such as the NEO NEXT+ initiative, are emerging to address capital constraints and manage risk exposure.
3. Sharpened Focus on Capital Discipline and Efficiency
With oil prices forecasted to average between $57 and $59 per barrel and a surplus in supply, North Sea operators are expected to prioritize capital discipline. Investments will likely target projects with quick returns, such as brownfield expansions and tie-backs to existing infrastructure, as companies strive for profitability in a challenging market.
4. Intensified Energy Transition and Decarbonization Efforts
The sector faces mounting pressure to address environmental concerns. Key developments include the mainstream adoption of Carbon Capture, Utilisation, and Storage (CCUS) projects and the possibility of new regulations on Scope 3 emissions reporting in Norway. Efforts to electrify offshore operations and integrate renewable energy sources are also gaining momentum as companies work to reduce their carbon footprint and meet ESG standards.
5. Targeted Exploration, Primarily in Norway
Exploration activity in 2026 is expected to be concentrated in Norway, with plans to drill over 30 exploration wells. This stands in stark contrast to the UK Continental Shelf, which saw no exploration wells in 2025. Norwegian efforts are focused on high-impact prospects and appraisal wells on existing discoveries like Afrodite, Carmen, and Norma, which could unlock significant gas resources for Europe.
Production Outlook and New Developments
Despite reduced spending, Wood Mackenzie forecasts that North Sea output will remain steady at approximately 5.3 million boe/d, thanks to new project launches in both Norway and the UK. Norway’s production is expected to plateau at around 4.1 million boe/d, with Equinor’s Johan Castberg and Var Energi’s Balder redevelopment accounting for over half of the new volume. Six new projects are anticipated to come online in Norway this year, including Equinor’s 136 million boe Irpa gas field.
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