North Sea oil and gas producers are increasingly looking beyond the UK as a recent windfall tax and looming threats of further levies from the opposition Labour Party have squeezed profits and discouraged investment in the aging basin.
Major players like Shell, Chevron, and Exxon Mobil have already scaled back their North Sea operations, divesting assets to smaller independent producers such as Harbour Energy, Ithaca Energy, and Serica Energy. These independent firms are now focusing on mergers and expansion into other markets like Norway, Denmark, and beyond to cut costs, boost revenues, and mitigate the impact of the UK’s harsh business environment.
Gilad Myerson, executive chairman of Ithaca Energy, one of the largest North Sea producers, lamented that “the UK government has turned the UK North Sea into a very harsh business environment.” The 2022 introduction of a 25% Energy Profit Levy, later increased to 35%, has brought the total tax burden on the sector up to 75% – one of the highest in the world.
While the UK government says the temporary windfall tax encourages investment by providing exemptions for re-invested profits, producers like Harbour Energy have still pared back investments and cut hundreds of jobs. In response, firms are actively pursuing opportunities to diversify outside the UK, with Serica Energy, Ithaca Energy, and Harbour Energy all announcing plans to expand into neighboring North Sea countries or execute major acquisitions.
The shift in strategy could accelerate the decline of domestic North Sea production, potentially increasing the UK’s dependency on energy imports and exposing consumers to greater price volatility. However, with the pressures of high taxes and an uncertain political climate, North Sea producers appear to be prioritizing their long-term profitability and competitiveness over maintaining a strong domestic presence.