UK govt decision on Rosebank, Jackdaw highlights deteriorating upstream outlook

The recent announcement by the UK government that they will not defend two upstream licences, Rosebank and Jackdaw, that are being challenged in court, marks a victory for environmentalists and highlights a further deterioration in outlook for the oil and gas sector, commentators told Gas Outlook.

UK Energy Secretary Ed Miliband announced at the end of August that the government will not defend the case against two of the biggest North Sea upstream schemes, Rosebank and Jackdaw, thus acknowledging that the decision to grant these licenses without taking into account the full extent of their climate impacts was unlawful.

Rosebank is being developed by a joint venture between Norway’s Equinox and UK company Ithaca Energy. Located around 130 km north-west of Shetland, it holds total recoverable resources estimated at around 300 million barrels of oil. The two companies reached a final investment decision on Phase 1 — which 245 million barrels of oil — in September last year, with start-up expected in 2026-2027.

Jackdaw is owned by Shell and is expected to produce 40,000 barrels of oil equivalent per day, which is equivalent to 6% of the UK’s North Sea gas production.

The legal dispute over the two projects follows a landmark ruling by the Supreme Court in June, which had stipulated that emissions from burning fossil fuels must be considered when approving new drilling sites.

Environmental groups Greenpeace and Uplift had secured judicial reviews of the two licences, already issued by the North Sea Transition Authority (NSTA) under the leadership of the previous Tory-led government.

The government’s position makes it more likely that the original decision to approve the projects will be declared unlawful.

“Jackdaw was approved in 2022 and we are carefully considering the implications of the announcement by the government,” a Shell spokesperson said.

“We believe the Jackdaw field remains an important development for the UK, providing fuel to heat 1.4 million homes and supporting energy security, as other older gas fields reach the end of production.”

“We will defend our case as an interested party,” an Equinor spokesperson told Gas Outlook, adding that: “Equinor welcomed regulatory approvals for the Rosebank development in 2023.”

“The Rosebank project is progressing according to plan.”

“We will maintain close collaboration with all relevant stakeholders to advance Rosebank, which is a vital project for the UK and is bringing benefits in terms of investment, job creation and energy security,” it said.

“We welcome this announcement by the government not to defend the case against Rosebank, the approval of which by the last government was unlawful,” Tessa Khan, executive director of Uplift told Gas Outlook.

“This government has rightly accepted that this huge oil field cannot proceed without the full extent of the damage it will do to our climate being taken into account.”

“It is astonishing that the massive emissions from burning oil and gas have been overlooked by decision-makers till now,” she added.

“Experts have repeatedly warned that new oil and gas drilling will push us past safe climate limits, but Rosebank is also a bad deal for Britain.”

“It’s mostly oil for export and would do nothing to lower bills or boost our energy security yet, because of huge tax breaks for new oil and gas drilling, the UK public would effectively cover a huge chunk of the costs of developing it.”

“In the year since Rosebank was approved, we’ve seen the impacts of climate change escalate, driven by the burning of oil and gas, whether that’s months of flooded fields impacting UK farmers, or lethal temperatures and wildfires around the world.”

“Even with new fields being approved, jobs supported by the industry have more than halved in the past decade.”

“Instead of acting in the narrow interests of fossil fuel firms, the government can now turn its attention to creating good, secure renewable energy jobs and supporting workers into these industries that have a long-term future.”

Windfall tax hike

The announcement comes on the back of an already deteriorating outlook for the North Sea upstream sector amid a planned windfall tax hike.

“The numerous recent changes to the UK fiscal regime certainly dampened investor sentiment and deterred investment,” Sonya Boodoo senior vice president of upstream research at Rystad Energy told Gas Outlook.

“Companies do not feel confident to make substantial investment decisions in a constantly changing landscape, and we expect activity on the UK Continental Shelf to take a hit in the coming years as a result.”

“The uncertainty has also prompted many previously UK-focused companies to diversify their portfolios outside of the UK.”

North Sea production declined from a peak of 4.4 million barrels of oil equivalent per day (boed) in the early 2000s to around 1.3 million boed today. According to the NSTA it will decline to less than 200,000 boed by 2050.

Meanwhile, the UK government said it will increase the Energy Profits Levy to 38% from 1st November 2024, bringing the headline rate of tax on upstream oil and gas activities to 78%. 

Industry body Offshore Energies UK (OEUK) said the increase, which follows a number of changes to the taxation regime, will lead to a drop in revenue of £12 billion between 2025 and 2029 due to the decline in investments and in production.

The companies pursuing Rosebank and Jackdaw are expected to clarify whether they intend to defend their case later in September, with a potential hearing expected in November.

Meanwhile, the UK government announced a consultation on new environmental guidance for oil and gas firms, in light of the Supreme Court ruling. The consultation is expected to end by spring 2025.

Furthermore, the government is expected to consult later this year on the implementation of its manifesto position not to issue new oil and gas licences to explore new fields.