North Sea oil producers are warning of a mass exodus

The UK oil industry has had a tough few years. The future does not promise a change in a positive direction either. All hope for this appears to have been lost, and some oil drillers are looking to other jurisdictions for their future survival.

This is certainly the case for Serica Energy, one of the largest suppliers of oil and gas to the UK, which operates fields in the North Sea. The North Sea was once one of the largest oil and gas producing regions in the world.

Serica Energy Chairman David Latin recently dropped what should have been a huge bombshell for any government concerned about energy security. “Britain is now more fiscally unstable than almost anywhere else on the planet,” he said quote by the Telegraph. “This means we are looking for new places to invest our money. And Norway is a place where we could recreate our business model.”

Latin’s statement is nothing more than confirmation that a Labor government fixated on increasing the amount of wind and solar capacity in the country and funding that push with oil and gas tax money is driving the industry away. Plans to further increase taxes on windfall profits on the industry and remove a tax incentive that kept manufacturers at home until the Keir Starmer government takes over could prove the final push in the door.

There is also uncertainty about future energy policies making North Sea oil and gas operators reluctant to invest in local production.

“(Policy uncertainty) reduces our willingness to spend money to get things done quickly, because if we spend and the policy changes, then we have to start over,” the president of a relatively small producer, Ping Petroleum, said Financial Times this week. “People are moving away from fields with significant margins,” Robert Fisher said.

As Serica’s chairman suggests, those moving away from the British North Sea are likely to find other places to put their money. The British government, however, would be hard-pressed to find another industry it could learn so deeply and get away with. And that’s a big deal because Labor has promised a fast and ambitious transition to wind, solar and hydrogen. And fast and ambitious cost more money than one or the other.

The Financial Times reported that tax revenue from the oil and gas industry reached almost £10 billion last year, but the amount is set to drop off a cliff over the next five years to just over £2 billion in 2028. This it will not be enough to fund what the Labor government calls Great British Energy — the state-owned transition vehicle for transition funding.

“If the government implements the kind of windfall taxes that I’m talking about, then you’re going to end up with a cliff edge in UK energy production because the industry will be taxed into uncompetitiveness,” Stifel analyst Chris Wheaton told the Financial Times. “This will cause a very dramatic drop in investment and therefore output and jobs, and a big hit to energy security.”

In other words, if the oil and gas producers currently operating in the British section of the North Sea are to ensure their long-term survival, they should look for opportunities abroad. For Serica, Norway is a simple destination. If it doesn’t work there, the company will look elsewhere, according to its president. Importantly, it will no longer supply oil and gas to the UK. And if others follow, thousands of jobs will be lost and Britain, ironically, will become even more dependent on energy imports.

By Irina Slav for Oilprice.com

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