UK North Sea oil companies look overseas for growth
High taxes and unpredictable politics spur companies to spend three times more on international deals than in Britain
UK oil and gas companies have spent three times more on overseas acquisitions than on North Sea deals over the past four years, as they seek growth beyond the declining basin.
North Sea operators have committed $18.9bn to international expansion since 2022, compared with $6.47bn on deals at home, according to data compiled by broker Cavendish. This is a reversal from the four years to 2022, when spending on UK-focused deals was $14.4bn and companies put $4.7bn into international acquisitions.
Serica Energy, which pumps about 10 per cent of the UK’s gas from the North Sea, became the latest local company to venture abroad this week, after agreeing a £145mn deal for Pharos, which produces oil and gas in Egypt and Vietnam.
Chris Cox, Serica’s chief executive, described the acquisition as the “first step” in a longstanding plan to diversify Serica “through international expansion”.
The UK continental shelf had been a happy hunting ground for oil and gas companies looking for cut-price producing fields since the majors began to sell assets in the early 2010s.
But the reversal to focusing overseas came after the UK government introduced a windfall tax on oil and gas profits in 2022, leaving North Sea producers facing a headline tax rate of 78 per cent after two subsequent rises in the levy. The industry has complained that successive governments have failed to support domestic oil and gas production.
The Labour government has said it does not intend to issue new exploration licences and has yet to approve two multibillion-pound existing projects, Rosebank and Jackdaw.
James McCormack, an analyst at Cavendish, said North Sea companies were using the cash flows from the mature basin to reshape their businesses. “Today’s UK oil and gas companies are listed in London, but increasingly built overseas,” he said.
Analysts at Shore Capital said earlier this year that “as long as UK energy policy remains a political battleground”, they expected investors to avoid UK oil and gas companies and operators to “pursue opportunities for growth in other geographies”.
The largest overseas transactions have been struck by Harbour Energy, which bought Wintershall Dea in 2023 for $11.2bn and US producer LLOG last year for $3.2bn. Ineos has also expanded in the US, while EnQuest has bought assets in Malaysia and Vietnam.
“The moves to diversify make a lot of sense,” said Matt Cooper of energy consultancy Rystad. “We might move into a world, perhaps we are quite close to it now, where the pure-play UK independent company is pretty much dead. It is just too risky for investors.”
By contrast, domestic deals have largely focused on consolidating mature assets and cutting costs rather than pursuing production growth. Only two transactions involved assets requiring exploration, while the overwhelming majority related to fields already producing oil and gas.
Several majors, including Shell, Equinor, TotalEnergies and Eni, have combined their North Sea assets, often in order to take advantage of tax allowances.
“The probability of increasing production in the UK North Sea is very low,” said Cooper, who estimated that oil and gas flows would decline by a quarter over the next five years, even including the output from Jackdaw and Rosebank if they were allowed to proceed. “Growth is incredibly unlikely. Geologically you could do it, but there is no appetite from producers to go in and invest,” he added.
Analysts at Wood Mackenzie also expect North Sea companies to continue looking for assets abroad, and said even the new joint ventures created by oil majors could eventually expand beyond the basin.
“Ithaca, Adura and Neo Next+ remain fully UK-focused for now, but international expansion can’t be ruled out in the long term,” said James Reid, a North Sea analyst at Wood Mackenzie. “We know Ithaca is looking at international opportunities.”
However, Reid said a large number of North Sea assets remained up for sale, including those owned by BP, Chevron, Cnooc, Shell, ExxonMobil and Apache. “There are still opportunities for deals in the UK continental shelf,” he said.