Following the UK’s decision to retain its current fiscal and regulatory regime regarding Britain’s oil and gas policy, Aberdeen-based full-cycle energy business NEO NEXT Energy and its partners, Serica Energy and Jersey Oil & Gas (JOG), are expected to gather together to determine their next steps for a proposed oil redevelopment project in the North Sea on the UK Continental Shelf (UKCS).
After Dana Petroleum terminated an agreement related to the proposed sale of the FPSO Western Isles , which NEO hand-picked for the Buchan Horst (Buchan) development project, the firm’s partner, Jersey Oil & Gas, explained that work was underway to prepare the necessary addendum to the project’s environmental impact assessment in response to the revised guidance regarding the inclusion of Scope 3 emissions.
A lot of hope was placed on the regulatory and fiscal consultations that were expected to impact the long-term direction of the UK North Sea oil and gas industry. However, some of the initial hope has died down in the aftermath of the government’s decision to reject the replacement of the energy profits levy (EPL) in 2026.
With this in mind, Offshore Energies UK (OEUK) believes that the decision will end up preventing £50 billion (approximately $66 billion) from being secured in investments, as companies will seek other playgrounds that are more profitable.
“With clarity on the longer-term tax regime now provided, the company will be working with the Buchan joint venture partners, NEO Next Energy and Serica Energy, to assess the impact of these changes on the Buchan project,” emphasized Jersey Oil & Gas.
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While noting the UK government’s response to the consultation concerning future changes to the UK oil and gas tax regime, the firm underlined that the subject of the consultation was the development of a permanent successor to the energy profits levy in the form of the oil and gas price mechanism (OGPM).
The company elaborates that the consultation response outlines that the OGPM will come into effect either on April 1, 2030, or earlier if the existing price floors that pertain to the EPL are passed. These are $74/bbl and 57p/therm in the last financial year.
The government has decided to adopt a revenue-based model for the calculation of windfalls under the OGPM, with a 35% tax being levied only on the revenues generated above the threshold prices. Two independent threshold price points will be set annually, one for oil (in dollars per barrel) and one for gas (in pence per therm).
In addition, the thresholds in financial year 2026-27 have been set at $90/bbl for oil and 90p/therm for gas. However, they will be adjusted annually in line with CPI inflation and are projected to be around $98/bbl and 98p/therm by 2030.
Jersey also notes that the OGPM, once in effect, returns the tax rate to the 40% headline rate in the permanent regime, only applying to oil or gas revenues if the respective commodity price is unusually high.
The fiscal and regulatory policy conundrums within the UK oil and gas ecosystem may have the potential to delay the first oil from the Buchan project, previously anticipated in late 2027, after being postponed for a year from the original timeline set for late 2026.
The Greater Buchan Area (GBA) covers the licenses P2498 – containing blocks 20/5a, 20/5e, and 21/1a – and P2170 – encapsulating blocks 20/5b and 21/1d – in the UK Central North Sea. The first contains the Buchan Horst oil field and J2 oil discovery, and the second license contains the Verbier oil discovery.
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While the first phase of the planned GBA work program envisions the redevelopment of the Buchan field, other phases will entail the tie-back of the Verbier and J2 discoveries within the GBA license area, alongside the potential for regional third-party discoveries to be tied back to an FPSO.