UK eyes price mechanism to succeed oil, gas 'windfall tax' by 2030

The UK government will replace its controversial "windfall tax" on oil and gas profits with a less punitive price mechanism on or before April 2030, it announced Nov. 26, in an effort to bring greater predictability to the embattled North Sea oil sector.

Publishing the results of a consultation on a permanent successor to the Energy Profits Levy on the day Chancellor Rachel Reeves delivered her Budget, the Treasury said it plans to eventually replace the measure with the Oil and Gas Price Mechanism.

A revenue-based tax, the OGPM will apply to all upstream oil and gas companies operating in the UK and its Continental Shelf, but only "during periods of high prices", the government said.

The rate will be 35% on revenues generated above the threshold prices, kicking in when oil exceeds $90/b and gas exceeds 90 pence/therm. These thresholds, which are significantly higher than the EPL's triggers of $74/b and 57 p/th, will increase in line with inflation, the Treasury said. They are therefore expected to rise to an estimated $97.59/b and 98 p/th in 2030/31.

Dated Brent, which is comprised of several North Sea crude grades, was last assessed by Platts, part of S&P Global Energy, at $63.55/b on Nov. 26, having fallen this year amid US tariff action and demand concerns.

The Platts UK NBP day-ahead gas prices, which hit a two-year high at 144.9 p/th Feb. 10, have traded in a much lower but volatile range of 63-82 p/th over the past month. Platts assessed it at 75.51p/th Nov. 20.

When the OGPM is not in effect, the tax rate will return to 40%, the government said.

The EPL is currently due to expire in March 2030, but could be repealed sooner if energy prices fall below a certain threshold for two consecutive quarters. The OGPM will be written into law in the next Finance Bill, Treasury said.

In another pragmatic move, the Department for Energy Security and Net Zero announced Nov. 26 it would allow for oil and gas production in or near existing fields through tiebacks, to "help ensure they remain economically viable and are managed for the entirety of their lifespan." The plans allow for output hikes without dropping Labour's promises not to issue new exploration licenses.

'Bitter blow'

The OGPM announcement came amid industry backlash against Reeves' decision to retain the EPL through 2030, after weeks of lobbying for its removal.

Offshore Energies UK, which represents the industry, described the move as a "bitter blow" for the UK oil and gas sector, having claimed that scrapping the levy in 2026 would trigger GBP50 billion of North Sea investment.

"The Energy Profits Levy is fundamentally flawed, and its impact is catastrophic," said INEOS Energy chairman Brian Gilvary in a statement. "It was introduced as a windfall tax driven by a short-term [post-pandemic] surge in oil prices -- but the temporary price surge justifying the levy has long passed, and yet the tax burden remains."

"Today's decision leaves the UK with one of the least competitive fiscal regimes in the world for oil and gas investment," Gilvary added.

The EPL was introduced in 2022 and extended and increased by the current Labour government, which came to power in 2024. It has left companies paying a headline tax rate of 78% and has been cited as a key reason behind the decline in North Sea oil and gas production over the past three years.

North Sea crude and NGL production slid from 1.6 million b/d in 2009 to 564,000 b/d in August 2025, according to data from the Department of Energy Security and Net Zero.

In a statement Nov. 27, Jersey Oil & Gas, which is focused on the North Sea, said the consultation had provided "clarity on the longer-term tax regime."

JOG said it would now work with its partners NEO Next Energy and Serica to assess the impact on their 100-million-barrel Buchan redevelopment project.

However, James Hosie, an equity analyst at Shore Capital, said in a note that the EPL successor regime "could be largely irrelevant by the time it takes effect in 2030," with companies currently looking to exit the UK or allocate more capital internationally.

According to estimates from the OEUK, oil and gas production could halve again by 2030, primarily due to the EPL and other above-ground risks.