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A revolution is underway in the North Sea. The ownership and operation of fossil fuel assets within the UK’s territorial waters are in flux at a critical juncture for the climate crisis. With the UK still the second largest oil and gas producer in Europe, these changes have important consequences for how we tackle the climate emergency while securing a just transition for workers and communities currently entwined with extractive industries. To shine a spotlight on the current state of ownership, we have produced this map for you to explore. The map traces the equity ownership of existing licenses granted by the UK Oil and Gas Authority, a government agency, showing the equity stakes and ultimate parent companies of each license block. In the heavily regulated space of the North Sea, these licenses – which come with conditions attached that companies must meet to maintain their license - confer exclusive rights to equity holders to “search and bore for and get” petroleum in a defined area, as set out in the Petroleum Act 1998. Critically, the Petroleum Act presently confers a legal obligation on the Oil and Gas Authority, which regulates the offshore oil and gas sector, to ensure a twin goal of maximising economic recovery of oil and gas resources - in other words, to ensure license owners operate in such a way as to ensure the extraction of all economically viable petroleum reserves associated with their license - while supporting the UK’s net-zero target, albeit focused on upstream production-linked emissions, not downstream consumption. Who owns the licenses helps determine who owns and controls the carbon wealth of the North Sea and how its natural bounty is used for whose benefit.
The map shows an ownership landscape in transition. Publicly listed Anglo-American oil majors such as Exxon Mobil, BP, and Shell, which have historically led the development of the North Sea, are retreating from their longstanding dominance, selling off billions of pounds worth of hydrocarbon assets. At the same time, a new generation of private equity-backed and state-owned entities are rising to prominence. The collective share of oil and gas production accounted for by private companies more than trebled in just ten years, from 8 per cent in 2010 to 30 per cent in 2020. Importantly, this shift suggests that while divestment from the North Sea by publicly listed companies is changing who owns the UK’s fossil fuel assets it is not necessarily significantly shrinking oil and gas production. Moreover, this ownership transition is likely to accelerate. As the Financial Times recently noted: “With oil prices surging over the short term, these operational assets are likely to be highly lucrative in the coming half decade, snapped up by hedge funds, private equity, and companies the public will have never heard of.” Complementing the rise of private equity backed-operators, major state-owned companies like CNOOC (China), Gazprom (Russia), Equinor (Norway) and TAQA (Abu Dhabi) are important actors in the North Sea. Of the 1402 unique blocks in the region covered by our analysis, we found 506 in which a private or state-backed entity has a controlling stake, defined as 50 per cent or greater equity interest.
The changing landscape of license ownership raises important questions about how we can rapidly and fairly wind down fossil fuel extraction in the North Sea in line with climate pathways that can limit warming to 1.5C at a maximum while securing a just transition for workers in the sector and interlinked communities. The structure of these operators has often historically be more short-termist, less transparent, actively hostile to organised labour, expected greater returns on investment, and was more insulated from pressure, whether from financial markets or public campaigners, than publicly listed oil majors (though this is not to suggest exclusive ownership by publicly listed oil majors, who are also profit driven, is our solution). Many tools currently used to try and decarbonise the operations and investment plans of fossil fuel-producing public corporations are relatively ineffective against private companies or foreign state-owned entities. Shareholder activism or engagement strategies, for instance, are severely limited when companies are privately held by ultra-wealthy owners or controlled by distant and often undemocratic foreign states; public campaigning is harder when the targets are often opaque, poorly known, or insulated from pressure; and the imperative to divest from fossil fuel “stranded assets” that could harm corporate balance sheets in the decades ahead is less pressing if a company’s business model is explicitly based on maximising returns on their assets in the short-term. This could also lead to the concentration of assets in the hands of operators potentially less able to manage the financial risks, leading to the UK state increasingly stepping in to cover the costs of decommissioning; risks would be socialised, rewards privatised. The power to influence firm behaviour through these channels by the exercise of ‘exit’, ‘voice’, and ‘loyalty’ by key stakeholders – whether workers, investors, civil society, or government - is therefore significantly diminished in these now prominent ownership forms. This makes the importance of systemic legal, regulatory, financial, and ownership reform all the more critical to achieving transformative change in the North Sea.
Above all, whether businesses are public, private, or state-owned, so long as the UK’s fossil fuel assets are controlled by corporate actors whose primary goal is the maximisation of profits, our ability to secure a just transition in the North Sea at the speed and scale required is put at risk. Put simply, the basic institutional design of the for-profit corporation - when their profits are overwhelmingly derived from the extraction and sale of fossil fuels - stands in direct conflict with the demands and time horizons of the climate emergency. Production proceeds based on prospective profit. So long as fossil fuel production remains profitable – and, critically, more profitable than alternative investment options – then energy companies will continue to invest to secure their extraction and sale. This currently remains the case. BP, for example, recently stated that though recent price volatility means it expects return on average capital employed (ROACE) to “be only in the 12–14 per cent range at the end of this decade, that is nonetheless 50 per cent higher than the 8–10 per cent ROACE that it is targeting for its innovative-financing-turbocharged renewable power business.” Given these relative returns, it means the production and sale of fossil fuels is set to remain core to its business. Similarly, Shell “recently identified no fewer than 21 major oil and gas projects presently under construction, spread across every continent bar Antarctica, and of which 11 would enter production in 2020–21 and 10 in 2022.” This is a pattern repeated across the sector: expected profitability drives corporate decision-making; the production of fossil fuels remains typically more profitable than renewable energy projects; as a result, even if renewable energy investment and generation grows significantly, this is likely to be alongside but not replace continued and indeed expanded fossil fuel production by energy companies. For the North Sea in particular, so long as the imperative of Maximising Economic Recovery remains in place, there is an additional regulatory pressure to do so, even accounting for its new net-zero obligation.
As the global economy continues to ‘unlock’, the buoyancy of oil and gas prices means fossil fuel production is likely to generate significant profit in the short-term, driving continued extraction on trajectories incompatible with a 1.5 degree future. Planned global oil and gas production is on course to rapidly take us far past safe climate limits with those least responsible for accelerating environmental breakdown already bearing a heavy cost today. Current global recovery spending plans are expected to see global carbon dioxide (CO2) emissions rise to record levels in 2023 and continue increasing in the following years. As a July 2021 IEA (International Energy Agency) report made clear, “Not only is clean energy investment still far from what’s needed to put the world on a path to reaching net-zero emissions by mid-century, it’s not even enough to prevent global emissions from surging to a new record.” A decisive step-change in behaviour is required; getting back onto a 1.5°C-consistent pathway will require decreasing global fossil fuel production by roughly 6 per cent per year between 2020 and 2030 yet current plans and projections expect an average annual increase of 2 per cent. That in turn will require rewiring how investment and planning in the energy sector is organised, and how demand is shaped.
While this is a global challenge, transformative action is needed in the North Sea. The UK has increased responsibility in terms of a managed and fair decline in production due to its lack of dependence on oil revenues, its ability to fund a just transition, and its historic contribution to climate change, relative to other countries. The OGA’s new net-zero obligation and the fact the North Sea's emissions have begun declining on a per barrel basis under the regulator's new rules, though not within climate compatible trajectories, suggests there is a start of sorts, though it is essential that considerations of net-zero extend beyond the immediate emissions associated with production to take into account the downstream emissions created by use of the product. Yet recent Price of Oil analysis found “Data from the independent research consultancy Rystad Energy projects that UK oil production could increase by as much 17.6 per cent between 2019 and 2030. The industry and government’s joint vision is that between 2020 and 2030, the UK’s oil and gas production will decline by 2 per cent a year, mostly because the UK’s oil and gas fields are nearing depletion.” Moreover, despite the IEA recently making it crystal clear the world cannot afford any new oil, gas, or coal developments if we are to reach net-zero by 2050, recent reports suggest the Cambo oil field will soon be the site of fresh and substantial drilling and extraction. This vast field, if this development proceeds as proposed, would become the fifth biggest producer on the UK Continental shelf, something recently vigorously opposed by the head of the IEA due to its damaging climate effects. Yet we should expect such outcomes absent a change in the deep structural drivers that organise our economy; so long as fossil fuel production in the UK remains profitable and the current structures of ownership, control, and legislation remain in place, the extraction of oil and gas in the North Sea will continue at levels incompatible with a safe climate and just future. Yet there is hope. Fossil fuel production is heavily regulated in the North Sea with the license to operate socially granted and conditional; the UK retains the capacity to change corporate behaviour and bring the sector in line with 1.5 degree alignment if it acts with the necessary boldness.
In this context, we must be as radical as the moment demands. Paradoxically, in the context of a systemic crisis, systemic change is the safest, most prudent path forward; policy that fails to proactively scale down the extraction of fossil fuels in the UK’s waters and rapidly scale up clean energy generation guarantees greater disruption and instability in the future than decisive action today. That will require going beyond the prohibition of new licenses toward the managed wind-down of existing fossil fuel infrastructures in line with the goals of a safe climate and a just transition for workers and frontline communities. Bold tools will be central to securing this fairer, cleaner, safer future. The privileging of the rights of corporate property and the interests of investors over the needs of people and planet will need to be replaced with democratic control of the UK's fossil fuel resources with their use determined by the needs of a just transition and production brought in line with a 1.5 degree pathway, not the imperatives of profit maximisation. This will require faster, stronger regulatory targets and actions and new forms of ownership based on securing different social and environmental goals than the principle of maximising economic recovery. Abolishing the carbon empire will depend on our ability to extend new forms of stewardship over nature in place of the prerogatives of property. In future work, we intend to set out what that agenda could look like in detail, based on principles of ecological and social justice.
Such an agenda will not be without challenge; political attempts to regulate away profitability or prohibit the exploitation of investor-owned assets is likely to be legally challenged by energy companies through investor-state dispute settlement mechanisms, such as the Energy Charter Treaty. As Kate Aronoff argues, these legal infrastructures - which insulate corporate power from democratic reordering - "entitles energy investors to sue governments for any policies they deem a threat to their profits." These mechanisms are widely and regularly used - and regularly find in favour of the plaintiffs. An example of the potential challenges ahead can be found in the case of Rockhopper Exploration, a UK-based company that bought a licence to drill for oil off Italy’s Adriatic coast in 2014, which is currently suing the Italian government for multi-million pound damages following the banning of new drilling near the Italian coast. In this context, securing a just transition should be seen as a social process as much as a technical and technological challenge, a question of power as much as engineering ability. Central to its success must be the sustained mobilisation of popular support behind the building of the infrastructures of a fossil free future and the assertion of democratic authority over the primacy of fossil capital.
Necessarily systemic though challenging as this might seem, we have experienced transformation on similar speed and scale. The North Sea has already experienced convulsive change in recent decades, change that in turn decisively reshaped the UK’s political economy. The manner in which the North Sea was developed in the 1970s and 80s - the privatisation of the natural-resources bounty of the North Sea; the UK’s subsequent failure to sustain its own publicly owned exploration and production enterprise like Norway; the importation of insecure, non-unionised labour practices into the sector; a legal and property regime that continues to provide strong rights to the license owner over their rent-generating asset; and light-touch tax arrangements for fossil fuel producers - was critical to the development of "carbon neoliberalism", “a model of managing public goods for private interests that soon became the norm.” Indeed, some political economists have astutely argued this agenda helped "make the North Sea an enduring corporate rentier’s paradise," that in turn helped drive the wider rentierisation of the British economy. Certainly it is impossible to imagine the entwined processes of de-industrialisation, internationalisation, and financialisation that have so profoundly reshaped this country in recent decades having such force without the political lubricant and economic impact of the black gold of the North Sea. We are made in Crude Britannia's image.
In different contexts and toward different goals, today’s energy transition offers similarly transformative potential. Just as the development of the North Sea helped power the rise of a neoliberal political economy, so the fairly managed wind down of fossil fuel production in the UK and the scaling up of a clean energy future can help lay the foundations for shared post-carbon prosperity. If the energy profile of fossil fuels - a stock that lends itself to privatised control and concentrated ownership - underpins carbon capitalism and all the unequal and hierarchical relationships this entrains, the flow of wind, wave, and solar power points in a radically different direction: toward collective management and democratic planning, the communal stewardship of shared renewable resources, and the abundance of a nurtured commons. That is the future we can still win, even now. For now, we hope this map contributes to a better understanding of the landscape and challenges facing us ahead.