London, November 27, 2025
The UK Labour government has announced plans to permit increased North Sea oil and gas drilling, limited to existing or adjacent fields, aiming to enhance domestic energy production while extending the windfall tax on fossil fuel profits until 2030 amid concerns over energy security and high prices.
Policy Shift on North Sea Drilling
The new government approach marks a cautious expansion of the North Sea oil and gas sector, authorizing drilling only in known or nearby fields rather than unlocking entirely new areas. This decision reflects an effort to bolster UK energy self-sufficiency while managing environmental and financial risks.
Windfall Tax Extension and Industry Reaction
Alongside the drilling plan, Labour has extended the windfall tax on oil and gas company profits through 2030. Originally introduced in 2022 to address excessive gains during price surges, the tax has faced opposition from the industry. Critics argue it stifles investment by removing key allowances, contributing to a steep decline in exploration and production activity.
Long-Term Decline of UK Oil and Gas Output
North Sea production has diminished dramatically over the past quarter-century, falling from 4.4 million barrels of oil equivalent per day to about 1 million today. Projections warn this decline could continue sharply, potentially reaching as low as 150,000 barrels daily by 2050. The government frames renewed drilling as a response to soaring electricity costs and the strategic need to reduce reliance on energy imports.
Industry Warnings and Government Balance
While the Labour administration seeks to balance energy security with climate commitments, sector leaders caution that the continued windfall tax may deter necessary investments and lead to job losses despite more pragmatic licensing policies. They call for reforms to ensure the longevity and competitiveness of the North Sea oil and gas industry.
The government’s dual strategy of permitting selective drilling expansions alongside sustained fiscal measures signals an attempt to reconcile immediate energy supply challenges with long-term environmental and economic objectives amid a changing global energy landscape.