A new analysis by Wood Mackenzie suggests that up to £10 billion of pre-tax value could be extracted from existing North Sea oil and gas assets if the UK government implements a favourable fiscal system. The report highlights the potential for increased production and revenue, contingent upon the establishment of a pragmatic fiscal and regulatory regime.
Wood Mackenzie’s analysis presents three scenarios: the current dataset, which assumes the Energy Profits Levy (EPL) remains largely unchanged; an indefinite EPL, representing a worst-case scenario leading to UK production halving by 2030; and a best-case scenario where a new fiscal regime is implemented by H1 2025, encouraging investment and restoring industry trust.
The best-case scenario could result in 15% more reserves recovered from existing assets, a 13% increase in gross revenue, and a 14% increase in pre-tax value. Additionally, this scenario could potentially save 12 million tonnes of carbon emissions over the next decade.
Industry Implications
Fraser McKay, Senior Vice President, Upstream Research at Wood Mackenzie, said: “Operators are fatigued by an ever changing and overly onerous tax burden and are accordingly adjusting the risked value associated with investing in the UK.”
“The best-case scenario we have developed is improbably optimistic, but very important to recognise, as it highlights the substantial potential value at risk in the North Sea oil and gas industry, due to the UK government’s fiscal decisions.”
The report underscores the urgency for government action, warning that delays in establishing a favourable fiscal regime could result in missed growth opportunities.
This is particularly crucial given the ongoing decommissioning activities and the maturity of the UK Continental Shelf.
With the potential for significant economic benefits and environmental improvements, the report suggests that a carefully crafted fiscal regime could unlock substantial value from existing assets whilst potentially contributing to emissions reduction efforts.
