High taxes, tighter margins and a ban on new exploration will continue to drive rationalisation in the sector, writes Jon Mainwaring
UK offshore oil and gas operators are bracing for more consolidation in 2026, after the government confirmed its Energy Profits Levy (EPL) will remain in place until March 2030. The EPL, introduced in 2022, raised the headline tax rate on upstream profits to 78pc from 40pc, reshaping project economics and company strategies. Executives argue the current price environment is "far from windfall" and describe the fiscal regime as punitive. Faced with higher taxes and tighter margins, operators are seeking scale and cost savings through mergers and joint ventures.
Shell and Norwegian state-controlled Equinor last month formally launched their new UK offshore joint venture, Adura, after agreeing the deal in 2024. And TotalEnergies agreed to form a UK-focused joint venture with Neo Next, an independent owned by Spain's Repsol and Norwegian private equity firm HitecVision. The new business, Neo Next+, will hold more than 50pc of the Elgin-Franklin gas complex, where TotalEnergies is already operator, as well as interests in several other fields. The deal will leave BP as the only European major still directly operating a UK portfolio itself.
Other examples of operators restructuring to manage UK exposure include Italian firm Eni exchanging its UK upstream assets for a stake in North Sea producer Ithaca Energy, and UK independent Harbour Energy merging with Germany's Wintershall Dea in an $11.2bn transaction that added assets offshore Norway and in other regions. Both of those deals closed in 2024.
Harbour has continued to diversify its portfolio away from the UK North Sea, last month agreeing to acquire privately held US firm LLOG for $3.2bn, marking its entry into the deepwater US Gulf of Mexico. And on the Mexican side of the maritime border, the company has just become operator of the deepwater Zama field, in which it already held a 32.2pc stake.
Harbour has cut hundreds of North Sea offshore jobs since 2024, but it is not giving up on the UK. It agreed a deal last month to increase its interest in the UK's Catcher field to 90pc from 50pc, through a takeover of junior independent Waldorf Production. The deal will also give Harbour a stake in the Kraken field and will add 20,000 b/d of oil equivalent (boe/d) to the firm's UK production.
Harbour is the UK's largest producer for now, with output of 156,000 boe/d from the UK offshore in January-September last year. But analysts estimate Adura will eventually produce over 200,000 boe/d, and TotalEnergies expects Neo Next+ to reach 250,000 boe/d in 2026.
Policy constraints
While operators consolidate to help manage fiscal pressure, the outlook for fresh projects is limited by government policy. Greenfield oil and gas developments in the UK will be scarce in 2026 and beyond. The government's ban on new licences remains in force. Its North Sea Future Plan — released on the same day the budget was delivered to parliament in November — allows limited additional production near existing producing fields. Operators are expected to direct capital spending to near-field tie-backs and other work to lift output from existing developments.
Two greenfield projects that could see first oil or gas towards the end of this year are Rosebank and Jackdaw. Equinor and Ithaca continue to work on Rosebank. Shell continues to work on Jackdaw. But the government must still decide whether the resubmitted environmental plans meet its required standards. Analysts are increasingly sceptical that Ithaca's 100pc-owned Cambo development, west of Shetland, will proceed at all, with the project yet to reach a final investment decision. After the budget announcement, investment bank Stifel issued a "sell" note on Ithaca's shares. Its valuation now assumes Cambo will not go ahead.
