UK partners on the lookout for fiscal and regulatory clarity before speeding up North Sea oil project

Aberdeen-based full-cycle energy business New European Offshore (NEO Energy) and its partners, Serica Energy and Jersey Oil & Gas (JOG), are still waiting for the fiscal and regulatory uncertainty surrounding the UK’s oil and gas scene to clear up, once the government wraps up its environmental guidance revamp for oil and gas projects, to move full steam ahead with their oil redevelopment project in the North Sea.

JOG claims that its partners in the Buchan Horst (Buchan) development project continue to await clarity on the fiscal and regulatory uncertainties currently facing the UK’s oil and gas industry, with work on the Buchan project slowed down by the operator, NEO Energy.

In the aftermath of an application submitted to the North Sea Transition Authority (NSTA) in 2024, 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.

Jersey underlines that it rang in the new year with a focus on two key activities, encompassing the advancement of the Buchan Horst development project to sanction stage and field development plan approval, alongside the pursuit of UK-producing asset acquisitions that accelerate monetization of the firm’s sizeable existing tax allowances.

However, the completion of the Buchan environmental impact assessment (EIA) approval process by the Offshore Petroleum Regulator for the Environment and Decommissioning (OPRED) has been paused, following the Supreme Court’s ruling in the Finch case last year, concerning the inclusion of Scope 3 emissions in development project EIAs. 

The UK government embarked on a consultation on new environmental guidance for oil and gas firms in the wake of the ruling, driven by its conviction that such guidance is necessary; thus, it aims to conclude its consultation by Spring 2025. 

In light of this, JOG is adamant that the actions required to advance the Buchan EIA will be clarified after the revised guidance is issued by OPRED this spring. As the UK government is expected to kick off a consultation shortly on the tax regime that will apply to the oil and gas industry after 2030, the company believes that satisfactory clarity on the results of the consultation is required to facilitate the sanctioning of the Buchan project.

The agreement longstop date was reached at the end of February 2025 with work still outstanding, even though the majority of the required inspection, verification, and pre-transfer work has been completed by Dana Petroleum on the floating production, storage, and offloading (FPSO) Western Isles to satisfy the main technical requirements of the sale and purchase agreement.

Given the current slowdown in Buchan project activities because of the fiscal and regulatory consultations, along with work on the vessel still requiring completion, the companies have not terminated the agreement and are engaged in a dialogue on the optimal contractual way forward to accommodate these delays. NEO Energy, the Buchan operator, remains a 23% owner of the FPSO hand-picked for the project.

Andrew Benitz, CEO of Jersey Oil & Gas, commented: “With the Buchan licence having now been extended, the joint venture partnership has secured the necessary time to determine the appropriate path to project sanction, with JOG holding a 20% carried interest to first oil.  Whilst the UK government’s fiscal and regulatory consultations are creating a somewhat uncertain backdrop for the industry at the current time, the way forward on these two key areas is scheduled to be resolved over the coming months.” 

In a bid to accelerate potential value creation from JOG’s existing UK tax allowances of over $100 million and bring cash flow into the business, several potential UK-producing asset acquisitions are being actively evaluated, but the total cash running cost of the business has been reduced by approximately 50% to £1.5 million in 2025 after the slowdown in activities on the Buchan project. 

While the company’s aggregate cash balance at the end of 2024 was about £12.3 million, a further $20 million cash payment is payable under the terms of the Buchan farm-out agreements once approval of the FDP comes from the NSTA alongside the receipt of the associated regulatory and legal consents.

“The Buchan project has the potential to create over 1,000 jobs across many parts of the UK’s supply chain and over 200 project related jobs, attract private investment of around £1 billion into the UK economy and generate hundreds of millions in UK tax revenues,” Benitz added.

JOG holds a 20% interest in each of 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 that referred to as the Greater Buchan Area (GBA). While license P2498 contains the Buchan Horst oil field and J2 oil discovery, license P2170 contains the Verbier oil discovery.

The first phase of the planned GBA work program is about the redevelopment of the Buchan field, but 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 the FPSO.

The current fiscal and regulatory woes within the British oil and gas landscape are anticipated to delay the first oil from the Buchan project, which was previously forecast to be in late 2027. The first oil has already been postponed for a year from the original timeline when it was slated for late 2026.