Wood Mackenzie Sees Sharp Pullback in UK North Sea Capex

Core Viewpoint - The North Sea oil and gas sector in the UK is experiencing a significant decline, contradicting claims of abundant reserves, with production expected to fall sharply and investment decreasing due to regulatory challenges and high taxes [1][3]. Investment and Production Trends - The North Sea is projected to have approximately 2.9 billion barrels of oil equivalent by the end of 2024, indicating only decades of supply rather than the centuries suggested by some [1] - Wood Mackenzie forecasts that 2023 may be the last year the UK produces over 1 million barrels of oil equivalent per day (boe/d) from the North Sea [2] - Investment in the UK upstream sector is expected to drop to less than $3.5 billion in 2026, the lowest level since the 1970s, while Norway is projected to maintain around $20 billion in development spending [5] Regulatory Environment and Its Impact - The UK Energy Profits Levy (EPL), a temporary windfall tax at a rate of 78% on exceptional profits, has deterred new projects and negatively impacted investment in the sector [3] - The EPL is set to end by March 2030, to be replaced by a permanent Oil and Gas Price Mechanism (OGPM) that will impose a 35% charge when prices exceed certain thresholds [3] Future Outlook and Industry Dynamics - The North Sea upstream sector in 2026 will be characterized by reduced investment, ongoing mergers and acquisitions (M&A), and a focus on capital discipline and operational efficiency [4] - The divergence in investment levels between the UK and Norway highlights the contrasting fiscal and regulatory environments, with Norway benefiting from stable policies and a robust project pipeline [5]