The British Rig Owners’ Association (BROA) and its members are disappointed that the recent UK budget confirmed the continuation of the Energy Profits Levy (EPL) tax, which was introduced in response to the global energy pricing spike resulting from the Ukraine conflict. 

Following a significant and sustained reduction in energy pricing, the UK government had an opportunity reduce this “windfall” tax at the budget but chose not to, and this decision will have a considerable detrimental impact on the UK’s Oil and Gas and wider offshore energy industry.

The increased fiscal burden imposed by the EPL, resulting in an effective corporation tax of 78%, reduces the profitability of both new and existing projects, making the UK a far less attractive destination for investment compared to other regions with more favourable and stable tax regimes. 

This, in turn, will lead to delays or cancellations of vital exploration and production activities, reduce rig demand and lead to job losses and supply chain instability. Furthermore, the uncertainty generated by frequent changes to the tax framework undermines long-term planning and analysis has shown this will accelerate the decline of the domestic oil and gas sector, ultimately impacting the UK’s energy security and economic resilience.

The Government’s announcement for limited addition licensing to continue through Transitional Energy Certificates for tie-back projects linked to existing fields, whilst welcome, is insignificant if the companies producing the energy are exposed to 78% tax rate under the EPL until its planned end date of 2030.

The decision by government to continue with EPL is particularly disappointing as BROA, and many other trade associations, lobbied government at the highest levels to explain the materially negative consequences that the continuation of EPL would have on long term treasury receipts, net zero targets and energy pricing. 

These consequences are now being seen and the OBRs latest Economic and Fiscal Outlook shows that rather than increasing tax-take, EPL will have the reverse effect with a forecast ten-fold reduction in Oil & Gas receipts over the next five years. As a result of a recent reduction in UK oil & gas production, the UK has had to import energy at a higher cost and often with lower environmental standard putting pressure on inflation and emissions targets. These consequences will worsen with EPL reducing UK production and inevitably increasing the gap between home grown and imported energy.

2025 was the first year in 50 years that no new exploration wells were drilled and domestic oil and gas production has fallen by 40% in the last five years and is on course to halve again by 2030.  The UK’s energy security as monitored by the National Energy System Operator (NESO) in their recent Supply Security Assessment has identified an emerging risk to GB gas supply security and forecasts gas availability will be 78% lower by 2035 and warns North Sea output will fall from 27bcm to just 5bcm, leaving the UK heavily reliant on Norway, the US and Qatar, with import dependency “above 90%” during peak winter demand.

The mobile offshore industry operating in the UK Oil & Gas sector now have an uncertain future as they wait to see how and when their customers react in terms of rig demand. If demand does drop, the uniquely fragile UK rig market will likely see premium rigs permanently leaving the basin, older rigs being recycled, redundancies and potentially insolvencies in the most exposed companies. This will inevitably hamper the UK’s targets for decommissioning and impact broader offshore energy projects across wind, CCS and offshore hydrogen, leading to delays, higher costs and greater reliance upon imports. 

For more information please contact Robert Merrylees