Neo Energy puts brakes on North Sea investment over Labour plans

The future of a big oil and gas project in the North Sea has been thrown into doubt after the lead developer said that it would curb investment in light of an increase in windfall taxes and the potential introduction of more stringent emissions rules.

The £900 million Buchan project had been scheduled to start producing its first oil in 2027 and to turn out about 35,000 barrels a day at its peak.

However, Neo Energy, which owns 50 per cent of the scheme, said that government plans for new environmental rules for oil and gas extraction would cause delays in securing a sign-off from the Offshore Petroleum Regulator for Environment and Decommissioning, the environmental regulator for all offshore oil and gas operations in the North Sea.

The consultation comes after a Supreme Court ruling set a precedent that planning decisions must factor-in the climate impact of the emissions from burning fossil fuels, not only from extracting them. Last week the government said that it would not challenge the court’s decision. The review is set to be completed in the spring of next year.

Labour’s decision to increase the energy profits levy to 38 per cent, which has increased the headline rate of tax for oil and gas companies to 78 per cent, and to cut investment allowances also have contributed to Neo Energy’s decision to reduce spending on the project. The windfall tax on oil and gas profits was introduced by Boris Johnson in 2022 as a response to soaring energy prices.

The changes had “materially increased the level of uncertainty in relation to the UK’s oil and gas sector” and had made investment decisions “extremely challenging”, Neo said. They would “clearly have a negative impact on the economics and overall viability of a project such as the Buchan Horst”.

The remainder of the Buchan project, which is considered to be one of the largest developments in the North Sea, is owned by Serica and Jersey Oil & Gas. In June, Jersey Oil &Gas said that the early general election had prompted the companies to push back a final investment decision on the project until later in 2024. “Homegrown energy should always trump imports, creating domestic economic growth, jobs and valuable UK tax receipts,” Andrew Benitz, its chief executive, said.

Neo is seeking an extension to its operating licence so it can continue technical evaluation work for the project.

The setback wiped nearly a fifth off the share price of Jersey Oil & Gas, which was down by 14½p, or 19.7 per cent, at 59p at the close.