UK’s fiscal and regulatory hurdles pull the plug on FPSO buy as North Sea oil project awaits policy reset

A deal for a floating production storage, and offloading (FPSO) unit, picked for an oil redevelopment project in the North Sea, has been taken off the table as Aberdeen-based full-cycle energy business New European Offshore (NEO Energy) and its partners, Serica Energy and Jersey Oil & Gas (JOG), continue to wait clarity on the fiscal and regulatory woes arising from the UK’s current oil and gas policy conundrums.

The second term of the P2498 Buchan license has been extended by 24 months to February 28, 2027, providing the licensees with the time required to finalize a field development plan (FDP) for the Buchan field. While NEO Energy hand-picked the FPSO Western Isles for the Buchan Horst (Buchan) development project, Dana Petroleum has terminated the agreement related to the proposed sale of the vessel. 

The termination comes after the purchase agreement reached its longstop date at the end of February 2025, with work on the Buchan project slowed down by the operator, NEO Energy, as the joint venture’s ability to recommit to the acquisition of the FPSO is linked to the conclusion of the ongoing fiscal and regulatory consultations and completion of the required pre-handover works on the vessel.

While joint venture partners continue to await clarity on the fiscal and regulatory uncertainties currently facing the UK’s oil and gas industry, the acquisition of the FPSO Western Isles seems to have slipped through their fingers. However, the possibility of another purchase attempt for the same FPSO cannot be ruled out and may still be on the cards given NEO’s 23% ownership stake in the unit.

Andrew Benitz, CEO of Jersey Oil & Gas, commented: “The route to unlocking the Buchan development continues to depend on achieving satisfactory conclusions in respect of the on-going fiscal and regulatory consultations. 

“The fiscal consultation was kicked off yesterday and encouragingly, while the details are yet to be fleshed out, it was apparent that the government has heard many of the concerns of the industry.”

In the aftermath of the Supreme Court’s ruling in the Finch case last year, concerning the inclusion of Scope 3 emissions in development project environmental impact assessments (EIAs), the UK government kicked off a consultation on new environmental guidance for oil and gas firms, which is expected to be concluded by Spring 2025. 

The licenses P2498 – covering blocks 20/5a, 20/5e, and 21/1a – and P2170 – encapsulating blocks 20/5b and 21/1d – in the UK Central North Sea are referred to as the Greater Buchan Area (GBA). The first contains the Buchan Horst oil field and J2 oil discovery, and the second license contains the Verbier oil discovery.

While the first phase of the planned GBA work program is about the redevelopment of the Buchan field, the subsequent phases are envisioned to entail the tie-back of the Verbier and J2 discoveries that lie within the GBA license area and the potential for regional third-party discoveries to be tied back to an FPSO.

The fiscal and regulatory policy issues within the British oil and gas ecosystem could delay the first oil from the Buchan project, previously anticipated in late 2027, after being postponed for a year from the original timeline, when it was scheduled for late 2026.