NEO Energy, which owns half of the Buchan Horst development project 93 miles off Aberdeen, has “taken the decision to materially slow down investment” amid fiscal and regulatory uncertainty in the UK North Sea.
The Buchan project, a collaboration involving Serica Energy and Jersey Oil & Gas, stands as the third biggest pre-development area in the UK Continental Shelf.
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The initial production was anticipated by the end of 2027, but it is likely to be postponed, as indicated in a statement issued this morning.
NEO outlined both the Finch ruling and Labour’s increase to the Energy Profits Levy as reasons for delays.
A statement read: “On 29 August 2024, the Department of Energy Security and Net Zero (DESNZ) announced that, in light of the Finch Supreme Court ruling, it plans to begin a consultation with industry on new environmental guidance in relation to oil and gas projects. This consultation is not expected to conclude until Spring 2025. Consequently, the Offshore Petroleum Regulator for Environment and Decommissioning (OPRED) has further announced that while the consultation is ongoing, they will be deferring assessment of all environmental statements, including ones already in progress, such as the Buchan Horst project.
“This follows the announcement on 29 July 2024 that the government intends to increase the Energy Profits Levy (“EPL”) to 38%, thereby increasing the marginal tax rate to 78%, to extend the EPL sunset date to 31 March 2030, to remove Investment Allowances and the intention to reduce Capital Allowances with the extent to be determined after industry consultation. In addition, the government wishes to consult on changes to the fiscal regime beyond 31 March 2030. These changes clearly have a negative impact on the economics and overall viability of a project such as the Buchan Horst.
“Against this uncertain backdrop, NEO and its 100% owner HitecVision, have taken the decision to materially slow down investment activities across all development assets in its portfolio.
“In relation to the Buchan Horst project, NEO awaits clarity regarding the UK regulatory and fiscal framework so that the full impact can be assessed. This will inevitably delay first oil timing in relation to the project which was previously forecast to be late 2027. The Joint Venture will seek a licence extension in order to continue technical evaluation in light of these changes to tax and environmental consents.”
CEO of Jersey Oil & Gas Andrew Benitz commented:
“Whilst demand for hydrocarbons continues during the energy transition, homegrown energy is the right solution. A project like Buchan has the potential to produce some of the lowest emission barrels of any project globally. Emissions arising from the combustion or use of those hydrocarbons will result in the same emissions as comparable barrels regardless of where they are produced.”
Jersey Oil & Gas owns 20% of the Buchan project, while Serica owns 30%.
Mr Benitz added: “Homegrown energy should always trump imports, creating domestic economic growth, jobs and valuable UK tax receipts.”
The announcement follows Offshore Energies UK (OEUK) warning 35,000 jobs are at risk if the Chancellor hikes the EPL next month during the budget.
The report from OEUK also predicts that more than 60% of future production planned in the North Sea will be axed if she scraps investment allowances.
This would cause investment in the sector to plunge and result in a loss of £13billion to the UK economy from 2025 to 2029.