The UK North Sea upstream sector faces a historically difficult year in 2025, marked by no exploration drilling for the first time since 1964, production falling to 1 million barrels of oil equivalent per day, and significant job losses. However, the industry will enter 2026 with greater clarity after prolonged policy uncertainty, despite the challenging environment.

Fiscal Policy and Investment Outlook

The UK government's Autumn Budget maintained the Energy Profits Levy (EPL) through 2030, solidifying some of the world's highest oil and gas taxes. While criticized as a missed opportunity, this decision provides operators with the certainty needed to plan. Analysts project a deepening investment crisis, with capital expenditure falling to around $6 billion in 2025 and forecast to drop further to £3.8 billion ($5.1 billion) in 2026, placing the supply chain under significant pressure. Some operators are evaluating ways to defer production until the levy expires post-2030. Major new fields like Cambo and Buchan are unlikely to start production before 2030 due to development lead times, which would allow them to avoid the higher tax levels.

Project Development and Consolidation

Policy clarity allows operators to advance plans, with Ithaca Energy tendering for an FPSO for the Cambo field. Upcoming government decisions on development consents for the Rosebank and Jackdaw fields could add momentum. For some companies, however, the clarity will confirm decisions to exit the basin. Industry consolidation and M&A activity are expected to increase in 2026 as companies seek to boost production and utilize tax losses. As opportunities to acquire tax loss positions diminish, companies will need more novel approaches to generate value. TotalEnergies will complete a UK asset merger in the first half of 2026, and further corporate reorganizations are anticipated.

Tiebacks and Future Resources

The government's policy to limit new licensing primarily to tiebacks to existing hubs has been welcomed, though rigorous definitions on allowable distances and emissions criteria are needed. From 2030, new tiebacks must connect to fully electrified hosts. The potential resource prize is significant, with an estimated 16 billion barrels of oil equivalent located within 50 kilometers of active hubs, offering a contribution to UK energy security and gas supply.

Decommissioning Challenges

A major policy question remains over decommissioning. New guidance expected in the spring could mandate the full removal of disused platforms to align with international clean seabed commitments. This approach could add approximately £50 million per structure for the 29 steel jackets slated for decommissioning on the UKCS. Experts warn that full removal may increase costs, cause delays, pose environmental and safety risks, and potentially face significant legal challenges.

Workforce and Just Transition

The industry faces pressing workforce issues, with more job losses announced following the Budget. Initiatives like the North Sea Future plan and the North Sea Jobs Service aim to support a just transition for workers into clean energy. However, industry representatives argue these measures are insufficient to protect the required number of jobs, emphasizing the need for continued engagement with government. A separate parliamentary inquiry into the future of the oil and gas industry provides another avenue for the sector to advocate for policy changes.