The coming year looks set to be a crunch one for the UK offshore industry, with ongoing discontent about the country's windfall tax on oil and gas profits.
And while the ruling Conservative government has moved to bolster investment in the UK' offshore and to partially offset the effect of its Energy Profits Levy windfall tax, a general election is due that threatens long-lasting consequences for the sector's future.
The government in November committed to holding yearly licensing rounds in an effort, it said, to support economic growth and protect the UK from volatility in international markets. But the opposition Labour Party has said that, if it forms the next government, it will end new North Sea oil and gas exploration. Meanwhile, oil and gas discoveries not yet approved for development are also at risk.
One of these is the controversial 170mn bl of oil equivalent (boe) Cambo oil field, which analysts at investment bank Stifel estimates its operator Ithaca Energy has until summer 2024 to get a final investment decision through. Ithaca "probably has the balance sheet to go it alone" at Cambo, Stifel said, but the independent's management insists it needs a partner to join the project before sanctioning it. An imminent election, which polls show carries a high probability of a change in government, means Ithaca will find it difficult to sign up a partner.
"It's unlikely to happen, at least ahead of some kind of political clarity because you have no idea… whether the development will be approved and, if so, what the tax rate is going to be on the asset," Stifel told Argus.
Ithaca, which already warned that its production in 2024 will be lower than that for 2023 because of the effect of the Energy Profits Levy on its projects, could decide to find an alternative home for the $1.4bn in capital it has allocated to Cambo, Stifel said. The bank suggests an acquisition in the US Gulf of Mexico, Brazil, Canada or west Africa might be an option for the company, which is wholly focused on the UK offshore.
Harbour Energy, the UK's biggest producer, bought Wintershall Dea's entire upstream portfolio in the last days of 2023 in a mammoth $11.2bn deal that takes its production up to around 500,000 boe from 190,000 boe.
Shell was Ithaca's partner at Cambo before it pulled out in September, with Ithaca agreeing to buy its 30pc stake. But the UK major had already sanctioned several projects in recent years that are designed to help sustain its North Sea production. One was the 30,000 boe/d Pierce project that started up in April.
Also set to start production in 2023, having originally been expected to start-up the year before, is Shell's 45,000 boe/d Penguins oil and gas field redevelopment. But the sail-away of its completed floating production unit — a target of environmental activists while on the way from China to a shipyard in Norway in January 2023 — is now expected to take place in 2024.
From now on, though, Shell's upstream project decisions in the UK will be made on a case-by-case basis rather than it committing to invest a budgeted amount each year, according to its finance chief Sinead Gorman.
Elsewhere in the UK offshore, BP will continue its work on the 29.5mn bl boe Murlach field, which was approved by the government in September and where first oil is expected during the first half of 2025. The UK major still has the potential sanctioning of the third phase of its Clair oil field in its back pocket. A final investment decision here would be a boon to the offshore sector, as Clair is on a par in scale terms with Cambo and the 245mn boe first phase of the Rosebank development. The latter was approved by Norway's state-controlled Equinor and Ithaca in September.
