The once-thriving UK North Sea oil and gas province survived 2025, the most difficult year since the 1960s when hydrocarbons were first discovered in the basin.
Oil and gas production from the mature fields continued to decline last year, while uncertainties increased as industry expected changes to the UK government’s policy that places an enormous tax burden on operators without incentives or investment allowances. Companies active in the UK offshore oil and gas sector reduced investments and froze plans in the face of heightened uncertainty.
With the pullback in investment and the government’s reluctance to award new licenses, exploration in the UK North Sea plunged to an all-time low. Due to unpredictable fiscal policies, 2025 became the first year since 1960 without a single exploration well in Britain’s offshore, consultancy Wood Mackenzie has warned.
Windfall Tax Suppresses Investment
The UK oil and gas industry received clarity at the end of 2025 about the fiscal regime that it was awaiting for more than six months.
The government removed most of the uncertainty with the Autumn Budget in November. But it left the windfall tax unchanged as-is until 2030—contrary to the pleas and warnings from the sector that the total tax rate, including the windfall tax, of 78% and no incentives or allowances would essentially tax the industry and its supply chain to death.
In fact, the only certainty that the industry received was that the punitive tax, officially known as Energy Profits Levy (EPL), remains until the end of the decade. For 2025, the levy was triggered by oil prices above $76 per barrel or natural gas prices 59 pence per therm. Oil prices were mostly below the threshold, but gas prices have remained above 59p a therm, which triggers the 35% windfall tax on profits.
Last year was terrible for the UK North Sea. Industry sentiment is that the horrible years aren’t over and an accelerated decline in investment and exploration would kill the industry and increase Britain’s need for oil and gas imports, exposing one of Europe’s top economies even more to the volatile international oil, gas, and LNG markets.
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The windfall tax, first introduced by a Conservative government at the height of the 2022 energy crisis and now extended under Labour, would wipe out all non-essential investment in the UK shelf, as it would compete with friendlier tax jurisdictions, according to WoodMac.
“The government turned down £50 billion of investment for the UK and the chance to protect the jobs and industries that keep this country running,” Offshore Energies UK chief executive, David Whitehouse, said in response to the decision to keep the windfall tax as-is.
“Instead, they’ve chosen a path that will see 1,000 jobs continue to be lost every month, more energy imports and a contagion across supply chains and our industrial heartlands,” Whitehouse added.
The Aberdeen & Grampian Chamber of Commerce said it’s “Lights out for North Sea oil and gas as Chancellor keeps windfall tax.”
The Chamber’s chief executive, Russell Borthwick, commented that instead of heeding advice from industry, “the UK Government has instead opted for a cliff-edge end to North Sea production and to tax the industry to death inside five years. Jobs will be lost in their thousands as a direct result of this government’s failure to act.”
The levy has prompted many companies to halt investment in the UK and move to cut workforce numbers in recent years.
The latest announcement came from one of the top independent producers, Harbour Energy, which last month said it expects to reduce employee numbers by another 100, on top of 600 jobs already eliminated since 2023.
Harbour Energy’s chief executive, Linda Cook, told the Financial Times at the end of December that the UK is “the worst of the fiscal environments among all the countries that [we] operate in.”
Due to the fiscal regime, the UK industry is forced to compete with other jurisdictions with “one arm tied behind its back”, Cook told FT.
Survival of the Fittest Mergers
In the unfriendly fiscal environments, operators in the UK North Sea are resorting to alternative solutions to boost profits and create value for shareholders. Mergers have become the most common of these solutions as the industry consolidates to cope with the punitive tax rate.
Last month, Harbour Energy announced an acquisition in the UK North Sea as the industry seeks to weather the crippling effects of the UK windfall tax.
“This transaction is an important step for Harbour in the UK North Sea, building on the action we’ve already taken to sustain our position in the basin given the ongoing fiscal and regulatory challenges,” said Scott Barr, Managing Director of Harbour’s UK Business Unit, commenting on the deal to buy Waldorf Energy Partners Ltd and Waldorf Production Ltd, currently in administration, for $170 million.
Harbour Energy became the latest operator in the UK to announce acquisitions, following the launch of the 50/50 joint venture of Shell and Equinor, which combined their offshore UK oil and gas operations in a new company, Adura. Earlier in December, French supermajor TotalEnergies said it would merge its upstream UK business with NEO NEXT to create the biggest independent oil and gas producer in Britain, NEO NEXT+.
Analysts expect the consolidation drive to continue, while the industry continues to call on the government to reform the fiscal regime.
“Restoring North Sea investment does not mean abandoning climate commitments; it is necessary to safeguard jobs, stabilise the economy, and maintain a bridge to a cleaner energy future,” UK’s energy and chemicals group Ineos, which has halted UK investments, said last month.
“How can businesses invest in that future if they are being driven to ruin?”
By Tsvetana Paraskova for Oilprice.com
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