North Sea oil and gas production is set to plummet over the next decade, with the Office for Budget Responsibility (OBR) projecting an annual decline of up to 14% as the industry faces a sharp contraction in output and tax revenues.
In a newly published document released alongside the UK Government’s Budget, the fiscal watchdog outlined a stark trajectory for the offshore sector. The OBR forecasts that even with the development of new fields such as Rosebank, production will continue to fall by 10% each year until 2031. However, should no new fields be brought online, the pace of decline is expected to accelerate to 14% annually.
The report notes that North Sea production has been on a downward trend since the early 2000s, a decline the OBR expects to persist as fields reach the end of their operational lifespans.
The impact of this downturn is set to be felt heavily in the public purse. While receipts from offshore corporation tax, petroleum revenue tax, and the Energy Profits Levy (EPL)—commonly known as the windfall tax—are expected to rise to £5.1 billion in the 2026-27 financial year due to high energy prices, this surge is forecast to be temporary. The OBR predicts that as recent price spikes unwind, revenues will drop to £1.9 billion by 2028-29, before cratering to near zero by 2031-32.
This steep drop in tax income is attributed to the dual pressure of falling production volumes and the scheduled expiry of the EPL in September 2029. Notably, the OBR revealed that the EPL is now expected to remain in place two years longer than previously forecasted, with total receipts from the levy projected to hit £9 billion between 2026 and 2031.
Beyond production challenges, the OBR highlighted that corporate restructuring within the industry has further diminished potential tax receipts. Recent high-profile merger activity—including the formation of Adura by Shell and Equinor, and the consolidation of assets by firms like Ithaca—has allowed companies to offset taxable profits against large stocks of existing tax losses. The watchdog estimates that these mergers will result in a cumulative £2.1 billion reduction in tax take through to 2032.
The projections serve as a sober assessment of the UK’s energy landscape, illustrating the rapid transition away from domestic North Sea fossil fuel extraction. As production dwindles and the fiscal benefits of the industry wind down, the data underscores a looming reality for the UK Treasury: the era of significant North Sea oil and gas revenues is drawing to a definitive close.
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