North Sea Oil Production Delayed by British Energy Firms Amid Fiscal Policy Uncertainty

North Sea oil and gas producers have been merging, shifting operations overseas, and reducing investment due to Britain's windfall tax, which reduces profits.

Three British energy companies have decided to delay the start of oil production at their joint-venture oilfield in the North Sea by a year, citing the need for clarity on fiscal policies from the next government.

Jersey Oil and Gas (JOG.L), which owns 20% of the Buchan field, announced the update on Wednesday on behalf of the joint venture partners, including Serica Energy (SQZ.L) and NEO Energy, which holds a 50% stake and operates the field.

Following the news, Jersey’s shares fell by 18%, and Serica’s shares dropped by approximately 1.5%.

North Sea oil and gas producers have been merging, shifting operations overseas, and reducing investment due to Britain’s windfall tax, which reduces profits.

Additionally, the opposition Labour Party has threatened to increase taxes if it wins the next general election.

In February, Serica acquired a 30% stake in the Buchan field from Jersey Oil and Gas, with a target for first oil production set for the fourth quarter of 2026.

However, this target was revised after British Prime Minister Rishi Sunak called for a general election on July 4. Jersey Oil and Gas now projects the first oil production to be in late 2027.

Jersey stated that the Buchan Field Development Plan is on track for approval by the end of 2024.

However, it noted, “The exact timing for achieving this key milestone and enabling project sanction is naturally linked to securing fiscal clarity from the next government and ensuring that the project remains financially attractive.”

The UK Treasury department declined to comment due to pre-election guidance, and the Labour Party did not immediately respond to a request for comment.

Labour, leading in polls, has pledged to increase the windfall tax by 3% to fund its energy transition strategy.

The North Sea oil industry argues that this move would further discourage investment.

“We anticipate the UK government will provide fiscal clarity such that the operator of the Buchan redevelopment will have sufficient confidence in the fiscal regime to progress with project sanction,” said WH Ireland analyst Brendan Long.

He added that the Buchan field is the best undeveloped oilfield of its kind in the UK North Sea in terms of scale and low risk.