One of the North Sea’s largest oil and gas projects has been plunged into uncertainty after its operator announced it was slowing down investment in light of “fiscal and regulatory uncertainty”.
Neo Energy had planned to start work on the £900m Buchan project – expected to produce a peak of 35,000 barrels of oil a day – in 2027.
But now the firm, which also owns 50 per cent of the project and is a top five producer in the North Sea, has said it will “materially” slow down its investment activities, describing conditions as “extremely challenging”.
Windfall tax and Supreme Court case behind Neo Energy decision
Neo Energy highlighted the government’s response to a recent Supreme Court ruling and Labour’s plans to raise the windfall tax as the two main reasons behind its decision.
In a recent landmark case, the UK’s top court found governments and planning committees should consider indirect emissions produced by oil fields before approving the projects.
The Department of Energy Security and Net Zero (DESNZ) has since announced it plans to consult on environmental guidance in light of the ruling.
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Meanwhile, the new Labour administration plans to raise the Energy Profit Levy to 38 percent, and thus firms’ marginal rate of tax to 78 percent.
It has also pledged to remove allowance for companies to avoid the levy on profits that went toward investment and exploration.
The government has argued raising the tax will help fund its aim of making the UK a “clean energy super power”, but the North Sea’s oil and gas sector has long been warning of the damaging effects that such a high tax rate will have on investment and jobs.
On Monday, Offshore Energies UK – a body that represents the North Sea’s oil and gas sector – released an analysis which argued the government’s plans could wipe £13bn off the UK economy while raising less tax than the windfall tax’s previous incarnation.
Despite the aggressive lobbying, the move from Neo Energy is the is one of the first high-profile cases of investment actually being dialed down in response to the regulatory environment.
In a statement, the company said: “Against [the sector’s] uncertain backdrop, Neo and its 100 percent owner Hitec Vision, have taken the decision to materially slow down investment activities across all development assets in its portfolio.
“In relation to the Buchan Horst project, Neo awaits clarity regarding the UK regulatory and fiscal framework so that the full impact can be assessed.
“This will inevitably delay first oil timing in relation to the project which was previously forecast to be late 2027.”
It added it would seek a license extension so it could “continue technical evaluation” in light of the changes.
Other industries have argued that for all the investment and jobs lost in the oil and gas sector, more jobs and investment will be created in the transition economy.
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James Alexander, the chief executive of the UK Sustainable Investment and Finance Association, told City A.M.: “North Sea Oil is finite and already dwindling. Those jobs will end when the oil runs out.
“There will, however, be millions of skilled jobs created by the energy transition, including in offshore wind. This is where the government must focus its ambitions and investment.”
DESNZ was approached for comment.
By Ali Lyon via City AM
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