One of the largest oil and gas projects in the North Sea is facing significant delays. Neo Energy, the operator of the £900 million Buchan project, announced it will slow down its investment plans due to “fiscal and regulatory uncertainty.”
The Buchan project, which was expected to reach peak production of 35,000 barrels of oil per day by 2027, will now see a substantial reduction in investment. Neo Energy, which holds a 50 percent stake in the project and is a top-five North Sea producer, cited “extremely challenging” conditions as the primary reason for this decision.
Impact of Windfall Tax and Supreme Court Ruling
Neo Energy’s decision stems from two major factors: the UK government’s response to a recent Supreme Court ruling and Labour’s proposed increase in the windfall tax.
The Supreme Court recently ruled that governments and planning committees must consider indirect emissions from oil fields before approving projects. In response, the Department of Energy Security and Net Zero (DESNZ) plans to consult on new environmental guidance.
Additionally, Labour’s plans to raise the Energy Profit Levy to 38 percent, increasing the marginal tax rate to 78 percent, and eliminate allowances for investment and exploration have contributed to the decision. The government argues that raising the tax will support its goal of turning the UK into a “clean energy superpower.” However, the North Sea oil and gas sector has warned that such high taxes could negatively impact investment and jobs.
On Monday, Offshore Energies UK released a report suggesting that the proposed tax changes could cost the UK economy £13 billion and yield less revenue than the previous windfall tax. Over 40 companies operating in the North Sea, including those in related industries like catering and engineering, signed an open letter criticizing the government’s approach as a “blunt response” that risks hundreds of thousands of jobs.
Neo Energy’s Response and Future Plans
Neo Energy’s move represents one of the first high-profile instances of a significant investment slowdown due to regulatory changes. The company stated, “Against this uncertain backdrop, Neo and its 100 percent owner Hitec Vision have decided to materially slow down investment activities across all development assets in its portfolio.”
Regarding the Buchan Horst project, Neo Energy is waiting for clarity on the UK’s regulatory and fiscal framework to fully assess the impact. This will likely delay the project’s anticipated start date from late 2027. The company also plans to seek a license extension to continue technical evaluations amid the changing environment.
Alternative Views on the Energy Transition
Proponents of the energy transition argue that while the oil and gas sector faces job losses and reduced investment, new opportunities will arise in emerging industries. James Alexander, CEO of the UK Sustainable Investment and Finance Association, emphasized the need to focus on the energy transition. He stated, “North Sea oil is finite and already dwindling. There will, however, be millions of skilled jobs created by the energy transition, including in offshore wind. This is where the government must focus its ambitions and investment.”
DESNZ has been contacted for comment.