UK offshore E&P more at risk from fiscal uncertainty than change of administration, WoodMac claims

Offshore staff

LONDON, UK – Britain’s opposition Labour leader Sir Keir Starmer has pledged to ban awarding of new oil and gas exploration licenses if his party wins the next general election. All polls indicate a large parliamentary majority for Labour following the election, which must be held by early 2025.

However, this does not necessarily sound the death knell for the UK oil and gas industry, according to Wood Mackenzie.

“Labour has said changes would only impact the offer of new licenses,” said Greg Roddick, principal analyst upstream with Wood Mackenzie. “Opportunities in existing licenses are more material and, in recent years, exploration drilling has already dropped to historic lows.”

The consultants estimate the UK’s yet-to-find prospective resources at just over 1 Bboe, with most of the prospectivity on existing exploration licenses.

The last new acreage hosting a commercial discovery was awarded in 2012, with the two prior rounds failing to deliver any drilling commitments. And the first exploration well from the previous round awards in 2020 is only likely to be drilled this year.

“The industry has long had the opportunity to secure the most prospective UK acreage and has largely already done so. There is no guarantee that new, commercial discoveries will be found [and] those that are will likely be small and are unlikely to reverse the trend given the maturity of the UK Continental Shelf," Roddick commented. “Given the challenging environment in the UK, open acreage would be considered much higher risk and is unlikely to attract the attention of the industry’s leading explorers."

North Sea Oil & Gas analyst Jessica Brewer said other factors would have more impact on future UK E&P investment decisions.

Last year’s imposition of the Energy Profits Levy by the conservative administration and the uncertainty around the Labour Party’s fiscal proposals will be the main hurdles to new projects going forward, she suggested.

Wood Mackenzie calculates that almost 5 Bboe could still be produced from onstream and approved UK offshore oil and gas fields, with pre-FID projects, reserves growth and existing discoveries contributing up to a further 3 Bboe.

“Pre-FID greenfield projects [which add up to nearly 2 Bboe] are the most obvious development candidates, given many are ‘sanction ready,’” Brewer said. “Labour has indicated new developments on existing licenses will be respected. The outcome of fiscal policy will have a greater bearing on projects in the longer term.”