The coming months are poised to be pivotal for Britain’s oil and gas sector, with vital investments, national energy security, and numerous jobs hanging in the balance.

As companies in the North Sea await developments, they are sensing unease regarding Labour’s potential policies aimed at transitioning to renewable energy and reducing reliance on hydrocarbons. Executives from major oil producers have cautioned that without supportive measures from the government, a further decline in production rates will occur, leading to decreased investment and potential job losses.

Rachel Reeves has stated that Labour’s electoral commitments, including halting new exploration drilling, increasing the windfall tax by an additional three percentage points (bringing the total to 78 percent), and withdrawing certain investment incentives, will be enacted starting this November. The chancellor has also proposed extending the windfall tax’s duration until 2030.

In response to these anticipated policies, Offshore Energies UK, a trade organization, has warned that the implementation of these tax plans might result in nearly £12 billion less in government revenue from 2025 to 2029 compared to the current tax framework.

Details regarding these proposed changes are expected to be unveiled in the upcoming budget on October 30, with industry stakeholders hoping for relief measures, such as increased capital allowances to alleviate financial pressure on firms.

Labour recognizes the critical role oil and gas will play in the UK’s energy landscape in the foreseeable future. However, a rapid decline in domestic production could lead to increased dependency on energy imports. While North Sea production peaked around 2001, a roadmap established by Sir Ian Wood, a notable figure in the Scottish oil services industry, suggested potential fossil fuel production from the UK continental shelf until at least 2050—a view that now appears overly optimistic in light of recent project delays and cancellations.

Deltic Energy’s chairman, Mark Lappin, who previously served as Labour’s election agent, has attributed his company’s decision to withdraw from the Pensacola project with Shell to economic uncertainty and detrimental political discourse. Deltic struggled to secure alternative funding to pursue its share of the project, which is estimated to contain over 72 million barrels of recoverable oil.

Similarly, a decision regarding the £900 million Buchan project, developed by Serica Energy, Jersey Oil & Gas, and Neo Energy, has also been postponed, raising questions about meeting its projected production timeline by late 2027.

Harbour Energy, the largest oil producer in Britain, responded to the introduction of the windfall tax in 2022 by cutting jobs and recently engaged in an $11.2 billion acquisition of Wintershall DEA’s European, Mexican, and African assets. Further mergers and acquisitions are anticipated, as existing North Sea operators seek efficiencies, or as companies like Ithaca Energy, which recently announced a £754 million acquisition of Eni’s UK assets, expand both domestically and internationally.

Bob Keiller, an industry veteran, emphasized the need for a reform of the stringent North Sea tax structure, advocating for a focus on retaining jobs and expertise within the sector while progressing towards renewable energy.

Keiller stated: “The whole tax scheme seems motivated by political objectives rather than practical economic considerations, which can deter investment returns. Investors face numerous uncertainties beyond tax regulations, leading to a challenging economic environment for oil and gas operations.”

Industry groups have expressed alarm at the potential job losses resulting from a significant drop in investments, predicting a decrease in overall investments within the sector from £14 billion to approximately £2.3 billion. They assert that the proposed tax revisions could exacerbate the decline of domestic production, with consequent reductions in tax contributions, job support, and overall economic benefit.

Chris Wheaton, an oil and gas analyst at Stifel, estimates that both direct and indirect job losses could impact up to 100,000 of the roughly 200,000 positions in the sector. He also foresees a potential 70 percent decline in domestic gas production by the conclusion of the decade, increasing the UK’s reliance on imports to approximately 80 percent.

While the nation has been a net gas importer since 2004, domestic production has historically fulfilled close to half of its gas needs, primarily sourced from Norway.

Wheaton urged Labour to find a balanced tax approach that fosters investment while supporting the UK’s energy transition and job security. He warned that extracting an additional £6 billion from the industry over the next five years could significantly hinder investment, risking the loss of essential jobs and skills necessary for a successful energy transition and compromising the UK’s energy security.

The Energy Transition Institute at Robert Gordon University in Aberdeen estimates that the direct workforce in the oil and gas sector could decrease by half to 60,000 by 2030. Their recent analysis suggests that with increased investment in renewables, the overall offshore workforce could potentially grow to 225,000 by the end of the decade, up from 154,000 in 2023, although it may also decline by 15 percent to as low as 130,000.

Former Labour energy minister Brian Wilson expressed optimism that new government leadership could foster improved collaboration with the energy sector, highlighting the need for flexibility to accommodate evolving circumstances and ensure progress in renewable energy while managing reductions in North Sea production.

A high-ranking executive from one of the North Sea’s larger producers underscored that the industry’s concerns are not unfounded, predicting a much faster decline unless support for spending is provided: “We face considerable uncertainty trying to assess project investments right now due to potential tax changes. The current tax regime is already the highest, and it skews the risk-reward balance against investment.”

The industry is hopeful that Labour will devise a supportive strategy for the future, with David Whitehouse, the chief executive of Offshore Energies, affirming the necessity for a favorable fiscal environment that promotes investment in offshore energy, necessary for a controlled shift towards cleaner energy without relying on increased imports.

The Treasury has committed to maintaining an open dialogue with the oil and gas sector to solidify amendments to the windfall tax, ensuring a gradual and responsible transition for the North Sea.