In the United Kingdom (UK), all proprietary rights in hydrocarbons are owned by the state under Section 2 of the Petroleum Act 1998. The UK government grants exploration and extraction licences for hydrocarbons.

There are multiple public authorities involved in the regulation of hydrocarbons in the UK.

The Department for Energy Security and Net Zero (DESNZ)

DESNZ was created in February 2023 and is responsible for the UK’s energy markets. Its aim is to encourage efficiency, protect energy security and reduce the UK’s emissions.

The North Sea Transition Authority (NSTA)

NSTA (known as the “Oil and Gas Authority” prior to March 2022) regulates the oil, gas, offshore hydrogen and carbon storage industries in the UK. It is the body responsible for issuing petroleum exploration and extraction licences (this process is detailed in 2.1 Forms of Private Investment: Upstream and 2.2 Issuing Upstream Licences/Obtaining Hydrocarbon Rights).

NSTA works with the government, industry and other regulators to: (i) facilitate energy production and security; (ii) accelerate the transition to renewable energy sources; and (iii) reduce emissions.

The Health and Safety Executive (HSE)

HSE is responsible for ensuring the safety of workers and enforcing health and safety laws.

HSE is the lead regulator under the Offshore Safety Directive (2015), working alongside NSTA and DESNZ.

HSE issues Approved Codes of Practice and technical guidance for safe operations addressing areas such as process safety, emergency response and hazardous substances.

Environment Agencies

The Environment Agency (EA) manages industrial activities and waste management in England. It issues environmental permits under the UK’s environmental permitting regime and grants water abstraction licences.

Natural Resources Wales, the Northern Ireland Environment Agency and the Scottish Environment Protection Agency are the equivalent agencies/bodies across the rest of the UK responsible for safeguarding the environment and the UK’s natural resources.

The Marine Management Organisation (MMO)

MMO is responsible for managing, regulating and controlling the marine environment. Its role includes granting marine licences, enforcing compliance with those licences and responding to marine pollution emergencies such as oil spills. MMO issues licences on behalf of the Secretary of State for Environment, Food and Rural Affairs in the waters adjacent to England, Wales and Northern Ireland.

The Offshore Petroleum Regulator for Environment and Decommissioning (OPRED)

OPRED regulates the decommissioning of offshore oil and gas operations, alongside carbon capture and storage (CCS) operations, on the UK continental shelf (UKCS). It is also responsible for the development, administration and enforcement of offshore oil and gas regulatory regimes.

OPRED’s stated role involves working towards the government’s Net Zero Strategy with other regulators.

The UK government held majority stakes in two oil companies until the privatisation of the oil and gas industry in the late 1970s and early 1980s: British Petroleum (BP) and the British National Oil Corporation (BNOC) (BNOC later became “Britoil”, before being acquired by BP).

Today, the UK government has no direct involvement in oil and gas exploration and production through a national oil or gas company. BP, Shell, Centrica, Harbour Energy and other major oil and gas companies maintain a large presence in the UK.

The Petroleum Act 1998 is the core legal framework for exploration, production and licensing of petroleum and for rights of access and pipeline authorisation.

The Pipelines Safety Regulations 1996 (enforced by HSE) regulate the design, construction, operation and maintenance of pipelines.

Downstream activities are regulated less strictly than upstream and midstream activities, but legislation still imposes numerous standards in key areas such as emission reduction (Dangerous Substances Explosive Atmospheres Regulations 2002) and hazard safety (Control of Major Accident Hazards Regulations 2015).

Private investment in upstream interests is permitted through: (i) equity investments into oil and gas companies operating on the UKCS; (ii) bidding for licences (outlined below); and (iii) debt financing secured against cash flows from oil and gas production.

Exploration and extraction of petroleum on the UKCS requires a licence issued by NSTA under Section 3 of the Petroleum Act 1998. Companies wishing to participate in the upstream oil and gas sector must bid for a licence, acquire one from its current holder or purchase an interest in the holder of a licence.

NSTA grants and administers two types of licence:

• Production licence:
1. Also known as an “Innovate Licence”, this provides exclusive rights to explore for and extract petroleum within a defined on the UKCS.
2. All activities are carried out by an operator appointed by the licence holder and approved by NSTA.
• Exploration licence:
1. This does not grant rights to drill or produce.
2. It is non-exclusive, and may cover areas outside the area of a company’s corresponding production licences.

NSTA is responsible for issuing licences for the exploration and extraction of petroleum on the UKCS pursuant to Section 3 of the Petroleum Act 1998.

Eligibility

• Technical capability: Applicants must show suitable technical managerial ability, including experience and staff numbers.
• Fitness of licensees and persons exercising control: NSTA will consider (a) whether the individual is bankrupt, or associated with insolvency proceedings, liquidation or administration; (b) any unspent convictions or any criminal proceedings; (c) whether the licensee, director or individual has been candid and truthful in all dealings with relevant regulatory bodies; and (d) whether a director or other individual has been dismissed, or asked to resign and resigned from employment or a position of trust, fiduciary appointment or similar.
• Financial viability: NSTA will assess the applicant’s historic and current solvency position and its financial history up to five years prior to the application.
• Financial capability: NSTA will consider the net worth of the applicant. If this is substantially greater than the estimated cost of the commitment, NSTA will usually deem that the applicant has demonstrated sufficient financial capacity.
• Tax considerations: NSTA routinely advises HM Revenue & Customs (HMRC) on licence transactions.
• Residence criteria: Prospective licensees must fulfil one of the following criteria: (a) have a staffed presence in the UK; (b) be registered at Companies House as a UK company; or (c) be a UK branch of a foreign company registered at Companies House.

Financing Arrangements

Where an applicant requires financing to meet its commitments under the prospective licence, NSTA requires supporting evidence. For instance, if a parent company loan will be required, NSTA expects a copy of the executed loan agreement alongside an executive summary of key terms. Where existing or anticipated bonds will be used for funding, NSTA expects detailed summaries of the arrangements including the borrowed amount, quantum and timing of capital repayments and interest payments.

Licensing Rounds

NSTA issues production licences through competitive rounds. Applications for petroleum licences during an open round are submitted online via the Licence Application Repository, a part of the UK Energy Portal.

Applications consist of (i) a completed form; (ii) evidence of financial viability and capability; (iii) technical and commercial evaluations of the blocks being applied for; and (iv) safety and environmental documentation for the Offshore Major Accident Regulator (OMAR) to assess.

Out-of-Round Process

NSTA has a process where a prospective licensee group can apply for production licences before the next open round. This process is set up for exceptional circumstances such as progressing activity in areas adjacent to acreage already held.

To maintain the competitive process, NSTA will invite applications for a licensing round once an out-of-round application is submitted.

Exploration licences can be applied for at any time as they are non-exclusive.

Current Government Policy

In March 2025, DESNZ published a consultation paper, “Building the North Sea’s energy future”, setting out the UK government’s commitment to issue no new offshore petroleum licences for blocks without licences in place. Extensions to term and duration are permitted for existing licences.

The model clauses for each offshore licence do not specify key fiscal terms.

Security

Licensees seeking to create charges on a licence must consider the terms of the Open Permission (Creation of Security Rights over Licences) (“Open Permission”) provided by the Department for Energy and Climate Change, 6 February 2012.

Open Permission requires NSTA to be notified of the following details within ten days of a charge being created: (i) size of the loan secured; (ii) licences affected; and (iii) the identity of the chargee.

Rentals

Each licence carries an annual charge, referred to as a “rental”, due each year on the licence anniversary, charged at an escalating rate on each square kilometre the licence covers at that date, with the exception of development areas and retention areas and exploration licences (which incur a flat-rate rental).

The taxation regime for upstream oil and gas operations consists of the following:

• Ring Fence Corporation Tax (RFCT): Only applies to companies involved in oil and gas exploration and production in the UK. RFCT is calculated as Corporation Tax, but includes a ‘ring fence’ that treats profits from these activities as separate, preventing them from being reduced for tax purposes by setting off losses from non-oil and gas activities against them. The current rate of RFCT is 30%.
• Supplementary Charge (SC): An additional charge on oil and gas companies’ ring-fenced profits, currently set at 10%. SC is calculated in the same way as RFCT, ie, on profits arising from ring-fenced activities but without deductions for financing costs.
• Energy (Oil and Gas) Profits Levy (EPL): A temporary tax on extraordinary profits of oil and gas companies operating in the UK introduced in 2022. The levy is set at 38% and is due to expire on 29 March 2029 unless oil and gas prices fall below certain thresholds.
• Petroleum Revenue Tax (PRT): A tax applied to production fields that were approved before 1993. In 2016, PRT was permanently reduced to 0% (though not abolished to allow companies to carry back certain trading losses and decommissioning costs).

There is no national oil company.

The UK has not passed any laws or regulations that prescribe local content requirements, but under the North Sea Transition Deal of 2021, the upstream sector voluntarily committed to achieve 50% local UK content and 30% locally-provided technology across the lifetime for all new energy transition and oil and gas decommissioning projects.

NSTA has developed a methodology for measuring the UK content across project lifetimes called “supply chain action plans” (SCAPs). Since 2018, SCAPs have been mandatory on all major upstream projects.

Activities carried out under production licences must be performed by a field operator (appointed by the licence holders and approved by NSTA).

Under the model articles for offshore licensing production, NSTA’s consent is required to “erect or carry out permanent works for getting or conveying petroleum used”. This consent is referred to as the Development and Production Consent (DPC).

A field development plan (FDP) must be submitted with any application for a DPC, detailing technical, economic and emissions information for the development. If the proposed production will take place in more than one licensed area (ie, under two separate licences), NSTA may require the licensees to enter into a unitisation and unit operating agreement prior to submitting the FDP. That agreement also requires approval from NSTA.

In addition, NSTA will require letters from the licensee’s board confirming:

• the scope of insurance or availability of necessary funds for any required remedial work;
• the availability of planning permission and absence of any ongoing planning disputes;
• that it supports the development plan and has the necessary funds available; and
• that NSTA’s licensee residence requirements have been met.

Where a project is within the scope of the Offshore Oil and Gas Exploration, Production, Unloading and Gas Storage (Environmental Impact Assessment) Regulations 2020, the agreement of the Secretary of State is required to grant consent to the project.

From a health and safety perspective, field operators must also submit design notifications to OMAR for any developments involving new installations. Following submission of design notifications, a safety case must also be approved by OMAR before operations can commence.

The model clauses for each offshore licence are found in: (i) the Schedule to the Petroleum Licensing (Production) (Seaward Areas) Regulations 2008 for Production Licences and (ii) the Schedule to the Offshore Exploration (Petroleum, and Gas Storage and Unloading) (Model Clauses) Regulations 2009 (SI 2009/2814) for Exploration Licences.

Production Licence Terms

Production periods

The model clauses provide for four production periods commencing from the date on which the licence was granted, unless otherwise specified. During or after the initial term, the licensee can modify the geographical apportionment of its licence subject to the approval of the Secretary of State for Business and Trade (“Secretary”) and other conditions specified by the model clauses. The 2008 model clauses incorporate the production periods defined in the updated Schedule 5 to the Petroleum (Production) Regulations of 1976. Those production periods are as follows:

• Period 1 (“Initial Term”): Four years, including an option for the licensee to initiate a second term upon written notice to the Secretary no later than three months before the expiration of the Initial Term.
• Period 2 (“Second Term”): Three years, including an option for the licensee to initiate a third term through the same procedure specified in Period 1.
• Period 3 (“Third Term”): Thirty years, including an option for the licensee to initiate a fourth term through the same procedure specified in Periods 1 and 2.
• Period 4 (“Fourth Term”): Discretionary term of years agreed by the licensee and the Secretary.

The Secretary’s approval of continuation requests is conditional on the licensee satisfying the requirements specified in the relevant work programme described below.

Minimum work programmes

Work programme proposals must list at least three specifications:

• the relevant works the licensee proposes to carry out to enable it to transport petroleum from the licensed area;
• the proposed locations for the works, and the times at which it proposes to begin and complete construction of the works; and
• the maximum and minimum quantities of petroleum in the form of gas or other forms that the licensee proposes to extract in each year of the licence.

Relinquishment requirements

The model clauses permit licensees to surrender their rights to parts of the licensed area by giving the Secretary at least one month’s notice specifying the exact parts of the licensed area being surrendered and retained. Any partial surrender by a licensee must be of at least 30 “sections”, defined as areas bounded by minute lines of latitude and longitude one minute apart respectively that all fall within the larger area comprised in the licence as the licence is delineated on the reference map deposited at the principal office of the Department for Business and Trade.

Extensions

Licensees may request to extend the Initial Term or the Second Term of their licence by notifying the Secretary no later than three months before the expiration of the current term. The Secretary has the discretion whether to grant the extension and may impose additional conditions upon granting the extension. If the Secretary grants an extension to the Initial Term or the Second Term, the term of the next production period will be reduced by an equivalent period of time.

Domestic supply requirements

The model clauses impose no quantity restrictions or requirements for licensees to sell the petroleum produced to domestic consumers. However, the model clauses do require licensees to notify the Secretary who they have sold the petroleum they produce to, and in what quantities.

Export rights

The model clauses impose no export restrictions on petroleum produced under a licence.

Liability and risk regime

The model clauses state that the following events will trigger the Secretary’s right to revoke a production licence:

• the licensee failing to make payment per any provision of the licence agreement for longer than two months past the date at which the payment was due;
• breach of any term of licence;
• bankruptcy or sequestration of the licence;
• the making of any arrangement of composition by the licensee with its creditors;
• the licensee’s appointment of a receiver or any other liquidator;
• breach of supplementary agreements formed by the Secretary between the licensee and third-party licence holders where the geographical boundaries of UK oil fields are redrawn; or
• the licensee ceasing to direct and control operations under the licence and commercial activities in connection with the licence.

Under the model clauses, the Secretary may partially revoke licences where the licensee’s breach is only in connection with specific parts of the licence or the licensed area.

The Secretary can also demand that the licensee comply with instructions “with a view to ensuring that funds are available to discharge any liability for damage attributable to the release of escape of petroleum” connected to the activities of the licence.

Withdrawal, termination and abandonment rights and obligations

The licensee can terminate its licence or partially surrender parts of the licensed area pursuant to the procedure described under “Relinquishment requirements” above. Following termination or partial surrender of a licence, the licensee loses all rights conferred by the licence to all of or part of the licensed area provided that:

• the termination or surrender does not affect any obligation or liability incurred by the licensee before the termination or surrender;
• the licensee is not entitled to seek any repayment from the Secretary in respect of the termination or surrender until the date of that termination or surrender;
• licensees cannot abandon any oil well without the written consent of the Secretary;
• wells may only be plugged according to procedures specified by the Secretary;
• wells not plugged, by default, must be left in good working condition for future licensees;
• the Secretary can demand at any time that a well be plugged;
• all wells within the licensed area must be plugged not less than one month before the expiration of the licence, unless the Secretary waives this requirement;
• all casings and fixtures forming parts of wells left in place once a licensee’s rights terminate become the property of the Secretary; and
• the licensee indemnifies the Secretary against all third-party claims made against the Secretary in connection with the licence.

Exploration Licence Terms

Exploration periods

The model clauses provide for a three-year term. The licensee may request an extension of this term by writing to the Secretary at least three months before the expiration of the licence.

Minimum work programmes

The model clauses limit the scope of exploration licences to prospecting, surveying (by physical or chemical means), or drilling for the purpose of obtaining geological information. Licensees cannot drill wells deeper than 350 metres below the surface of the seabed, unless the Secretary otherwise specifies.

The model clauses of exploration licences also prohibit licensees from getting petroleum for the purposes of production or injecting gas.

Relinquishment requirements

At any time, the licensee can terminate the licence by providing the Secretary with not less than one month’s notice in writing.

Extensions

After receiving a licensee’s written request for an extension of the term at least three months before the expiration of a licence, the Secretary may, in their discretion, extend the term for a further three-year period.

Export rights

Exploration licences do not permit the production of any petroleum.

Liability and risk regime

The model clauses state that the following events will trigger the Secretary’s right to revoke an exploration licence:

• the licensee failing to make payment per any provision of the licence agreement for longer than two months past the date at which the payment was due;
• breach of any term of licence;
• bankruptcy or sequestration of the licence;
• the making of any arrangement of composition by the licensee with its creditors;
• the licensee’s appointment of a receiver or any other liquidation.

Under the model clauses, the Secretary can also “partially” revoke licences where the licensee’s breach is only connection with specific parts of the licence or the geographic area contained by the licence.

The model clauses also direct the licensee to perform exploration operations with “good industry practices”, meaning the exercise of degree and skill that would reasonably and ordinarily be expected from a skilled operator engaged in the exploration authorised under the licence. The licensee must also take all steps practicable to:

• prevent escape or waste of petroleum discovered in the exploration area;
• conserve the exploration area for operations related to the production of petroleum;
• prevent damage to petroleum-bearing strata;
• prevent the entrance of water through wells to petroleum-bearing strata;
• prevent escape of petroleum into any waters or in the vicinity of the exploration area; and
• any other instructions specified by the Secretary.

The licensee can object to additional restrictions as unreasonable.

The licensee is responsible for informing the Secretary of breaches of these conditions in a timely manner.

Withdrawal, termination and abandonment rights and obligations

The licensee can terminate its licence pursuant to the procedure described under “Relinquishment requirements” above. The licensee loses all rights conferred by the licence to all the initially licensed area once termination occurs.

The licensee may not assign its licence to any third party without the prior consent of NSTA. Any assignment without prior consent is typically considered grounds for immediate revocation of the licence.

Assignment Process

Applications for assigning offshore and onshore licences are processed through the UK Energy Portal. These applications are processed by NSTA.

NSTA’s approval for the assignment of a licence is valid for three months. If the approval lapses, the licensee can submit a revised planned completion date (although reissue of approval is not guaranteed).

Assignment Policy

The model clauses do not prescribe factors for NSTA to consider in determining whether to consent to an assignment.

From a policy perspective, NSTA will take into account the following factors when considering whether to consent to an assignment:

• compliance with the Offshore Safety Directive in consultation with DESNZ and HSE;
• the technical and financial capacity of the proposed assignee against the standard licensee criteria;
• the ability of the new licensee to meet decommissioning costs; and
• operator approvals.

For intragroup assignments, NSTA will need to know who the buyer is in a corporate sale before granting approval. If the assignment is tax-related, NSTA may inform HMRC of any applications.

The assignment must be documented using a deed of assignment substantially in the form of a draft approved by NSTA. If a party wishes to use a bespoke deed of assignment, a copy must be submitted for NSTA’s approval.

The UK is not a member of OPEC and there are no explicit restrictions on the production of oil and gas rates.

However, the Oil and Gas Authority Strategy, which came into force on 11 February 2021, places an obligation on oil and gas companies to assist the UK government in meeting its net zero carbon targets, including by:

• maximising the expected net value of economically recoverable petroleum from UK waters rather than the volume produced; and
• operating and maintaining infrastructure to achieve optimum levels of production, energy and cost efficiency.

Midstream

Private monopoly

There is no government or private monopoly in the midstream operations sector in the UK. However, it is commonplace to have a dominant private operator in certain areas. For example, in midstream pipeline operations, a natural monopoly occurs where only one pipeline system is economically viable.

The National Gas Transmission System has a natural monopoly led by National Gas (which was formerly part of the National Grid and is now privately owned). The National Grid Transmission System is regulated by the Office of Gas and Electricity Markets (Ofgem).

Processing and fractionation systems

Private investment in processing and fractionation systems is permitted and can take various forms, including the following:

• Direct ownership and operation of onshore and offshore infrastructure: It is common for upstream investors to co-invest in platforms. For example, TotalEnergies sold its shares in the St Fergus Gas Terminal to North Sea Midstream Partners in 2015.
• Partnerships: These are regularly used where oil and gas field licensees use shared processing capacities. By way of example, the Scottish Area Gas Evacuation system (SAGE) pipeline runs from the North Sea to the SAGE gas processing terminal at St Fergus, Scotland. The SAGE system connects to 46 North Sea fields through nine primary hubs.

Any private investment in processing facilities must comply with oversight from HSE and EA.

Government approvals

Investors need to consider the need for planning and development consent from authorities such as MMO, and any potential Environmental Impact Assessments. Additionally, HSE and NSTA may need to be consulted depending on the proposed private investment.

In accordance with the National Security and Investment Act 2021 (NSIA), the Department for Business and Trade may need to be consulted over any proposed takeovers or ownership changes in the oil and gas sector.

In the UK, private investment in midstream operations is regulated as follows:

• Ofgem enforces third-party access, price regulation and transparency for critical pipeline systems;
• the Competition and Markets Authority can investigate anti-competitive behaviour or mergers creating excessive market concentration; and
• the UK Energy Act of 2023 sets up regulatory frameworks for hydrogen and CO₂ networks to prevent monopolistic abuse.

Downstream

Refineries and petrochemical facilities are long-term investments that require high capital expenditure. As a result, they are often financed through private investment via project finance and joint ventures. Less commonly, these facilities can be financed off corporate balance sheets.

In contrast, storage facilities and terminals often attract investments from infrastructure funds and institutional investors due to their relatively stable cash flows through sale-and-leaseback models.

Retail and wholesale fuel marketing networks often involve private equity, asset leasing or franchise models.

The UK’s energy transition targets are also attracting growing investment into hybrid downstream assets.

The UK does not have a national oil company and therefore has no national monopoly in the downstream industry.

Third-party access is broadly governed by commercial arrangements. The UK’s framework of competition law acts as a backstop for any issues with monopolistic investments.

While midstream and downstream oil and gas operations are not generally subject to a formal licensing regime in the same manner as upstream activities, certain areas such as pipeline construction, gas transportation, refining, fuel distribution and retail require regulatory approval.

Downstream

Under the Gas Act 1986, Ofgem is responsible for the regulation of the downstream gas industry. The Gas Act prohibits carrying out specified activities without a licence or an exemption.

Licences under the Gas Act include:

• a Gas Interconnector Licence, which permits the licensee to either (i) co-ordinate and direct the conveyance of gas into or through a gas interconnector; or (ii) make an interconnector available for use for the conveyance of gas;
• a Gas Transporter Licence, which permits the licensee to either (i) convey gas through pipes to any premises within an area authorised by the licence; or (ii) convey gas through pipes to any pipeline system operated by another gas transporter, or other pipeline system specified in the licence;
• a Gas Shipper Licence, which permits the licensee to arrange with a gas transporter for gas to be introduced into, conveyed through, or taken out of a pipeline system operated by that gas transporter; and
• a Gas Supplier Licence, which permits the licensee to supply gas to any premises through pipes. Supply can be to either (i) domestic and non-domestic premises; or (ii) non-domestic premises only.

Licence Applications

Ofgem adopts a tiered approach to processing licence applications, applying greater scrutiny on the basis of risk, namely:

• Tier 1: decisions made on the basis of the core, baseline information contained in Tier 1 of the application form; and
• Tier 2: where a Tier 1 application has a high risk assessment score, specific information and documents are required, alongside requests to interview persons relevant to the application, to come to a decision on the application.

Applicants must publish a notice of their application within ten working days of notification that the application has been received. The notice must be published on both the applicant’s and Ofgem’s websites and remain accessible for 28 days to allow submissions to be made.

Under the Gas Act, Ofgem’s primary consideration in determining whether to grant or reject a licence is protecting the interests of existing and future gas consumers.

Ofgem assesses licence applications using a number of criteria, including:

• Criterion 1: The applicant has the appropriate resources for its proposal to enter the market.
1. Ofgem expects supply licensees to demonstrate management of financial risks and resources. This includes proof of initial funding up to at least the end of their first year supplying customers.
2. Applicants must show proposed plans for the first two years’ operations in the supply market including: (i) core operational functions and processes; (ii) target customer base and expected rate of growth; (iii) IT systems; (iv) pricing strategy, tariffs and products; and (v) projected volume of energy and purchasing strategy, among others.
• Criterion 2: The applicant understands its regulatory obligations and has appropriate plans in place to meet them.

1. Ofgem expects applicants to provide a statement of intent in respect of compliance with their customer service-related regulations.
2. Applicants must show how they will comply with any applicable price caps.
• Criterion 3: The applicant is fit and proper to hold a supply licence.

1. If individuals associated with a previously failed supply business are making an application, this will not automatically lead to Ofgem refusing the licence application, but it is an important factor in Ofgem’s decision.

Note that this licence application process does not apply to code manager licences nor to smart meter communication licences.

In some situations, a licence is not necessary. The Gas Act and the Electricity Act 1989 allow the Secretary to make orders giving exemptions from the need to hold licences.

Midstream Operations

In pipeline transportation, it is typical to see the following commercial arrangements used: (i) transportation agreements between infrastructure owners and shippers; and (ii) tariff-based pricing structures.

In gas storage, it is typical to see the following commercial arrangements used: (i) storage service agreements, which define the injection, withdrawal or working volume rights and (ii) revenue models, which are usually a mix of fixed capacity charges and variable throughput fees.

Downstream Operations

Tolling agreements are commonplace for oil refineries. The crude oil owner pays a fee to a refiner for processing it into various products. Similarly, crude supply and offtake agreements are used to supply oil traders with feedstock and products.

A different tax regime is applied to midstream and downstream activities from that for upstream activities. Companies involved in the midstream and downstream industries are subject to standard corporation tax (charged at 25% for companies with profits over £250,000). Deductions against a company’s tax liability may be available for qualifying capital expenditure including tanks, refineries or terminals through the Structures and Buildings Allowance.

The sale of refined products and chemicals is subject to value-added tax at the standard rate of 20%. Additionally, the retail and wholesale sale of petrol and diesel is subject to excise duty, a tax levied on specific goods produced or imported into the UK applying at the point of release for consumption.

Private investors in midstream and downstream oil and gas operations do not generally receive tax exemptions.

There is no national oil company.

There is no statutory local content quota for midstream and downstream operations in the UK, but there are certain policy incentives which encourage the incorporation of UK into investors’ operations.

The UK government recently published a green paper on its commitment to develop a modern, targeted industrial strategy with the objective of long-term, sustainable, inclusive and resilient growth, by spurring investment into all parts of the UK, titled “Invest 2035: the UK’s modern industrial strategy”.

Local authorities may also attach conditions to planning permissions (eg, local employment and skills plans).

Midstream Licences – Key Terms

• Gas Transporter Licence: Key terms include financing and performance reporting requirements to Ofgem, non-discriminatory third-party access and compliance with the Uniform Network Code for gas transportation.
• Gas Interconnector Licence: Key terms include transparency obligations to publicise capacity and usage data, and a requirement to offer capacity on a transparent and non-discriminatory basis.
• Gas Storage Licence: Key terms include monitoring requirements and data sharing with Ofgem and the National Grid, a requirement to adhere to the Control of Major Accident Hazards regulations under the Environmental Permitting Regulations and publication of tariffs.

Downstream Licence – Key Terms

• Petroleum Storage Licence: Key terms include storage limits on the maximum permitted volume of hazardous substances alongside safety reports outlining accident prevention measures. The licence imposes notification obligations for any incidents.

In the UK, powers of compulsory purchase are granted to local authorities, government departments and other public bodies by legislation. The power to buy land without the consent of the owner is only permitted if it is in the public interest to do so.

Private investors can apply for a Development Consent Order (DCO) for consent to undertake a Nationally Significant Infrastructure Project (NSIP). The Planning Inspectorate will review and provide recommendations to the Secretary, who makes the final decision. This is a multi-stage process which can take around 18 months. A DCO is similar to planning permission but can include authorisation for the relevant public entity to compulsorily acquire land to facilitate an NSIP.

Compensation is provided to the former owners of forcibly acquired land to put them in the same position as if their land had not been forcibly acquired. The quantum of compensation is determined by the open market value of the land, ie, what it might have been worth if sold on the open market by a willing seller (and assuming that the NSIP was not taking place).

The transportation of hydrocarbons is regulated by the following governmental bodies:

• HSE provides the primary regulatory framework for the transport of dangerous goods (including hydrocarbons).
• EA oversees onshore oil and gas operations to monitor potential spills and accident hazards involving hydrocarbons.
• The Maritime and Coastguard Agency is responsible for regulating offshore oil and gas transport via sea-going vessels.

The Petroleum Act 1998 and Energy Act of 2016 establish the legal framework for third parties to access privately constructed infrastructure. These acts make assets on the UKCS subject to a “negotiated third-party access” regime, the process of which is summarised below:

• A prospective user seeking access to an upstream pipeline, relevant oil processing facility or relevant gas processing facility applies to the owners of that infrastructure for access.
• If the parties cannot agree on terms of access, the prospective user can apply to NSTA for notice to secure the rights of access.
• NSTA will consider the application. If it considers that sufficient time for the parties to have reached an agreement has not elapsed, it may reject or adjourn the application until sufficient time has passed.
• If NSTA approves the application, it may direct the owner to grant the prospective user access to the infrastructure on terms that ensure no person suffers a loss. NSTA can also specify direct compensation payments to be made.

Although voluntary, the Code of Practice on Access to Upstream Oil and Gas Infrastructure also sets out principles and procedures for third-party access.

In the UK, the sale of products from midstream and downstream operations is primarily regulated by the promotion of competitive sales through the Competition Market Authority.

For midstream products such as natural gas, liquefied natural gas (LNG) or crude oil, technical standards (such as requirements for gas to be compliant with the National Grid’s entry specifications) apply.

Generally, no export licences are required for crude oil, natural gas and petroleum products. Export licences may be necessary if exporting to a sanctioned country or if the goods being transported are “strategic materials”. When exporting, a customs declaration is required, which includes details such as the commodity code and country of destination as well as the value and volume of goods.

The UK is a member of the International Energy Agency and therefore may be subject to export restrictions during global supply crises.

Imports of oil products from sanctioned countries are restricted under sanctions law.

Before transferring midstream and downstream operations and assets between private owners, purchasers will conduct a due diligence process to confirm asset condition, value and integrity, environmental compliance, that all required permits and licences are in place, etc.

Once diligence is completed to the purchaser’s satisfaction, the transfer will be structured as either an asset or share sale. Asset sales are used to transfer specific facilities such as pipelines or terminals, and share sales are for the transfer of equity ownership in the company holding the assets.

Any sale agreement will typically contain conditions precedent for regulatory approvals.

From a regulatory perspective, issues that can arise in connection with such transfers include:

• Change of control: Contracts being transferred including terminal use or storage agreements often include change of control or assignment restrictions which require third-party approvals, which can delay or derail transfers.
• Permits: Some permits and licences require government consent for any transfer or change in control in the party that has been granted the permit or licence.

The NSIA came into force on 4 January 2022. It introduced investment control regimes for acquisitions in the UK with a view to protecting UK national security.

The NSIA has a notification regime whereby a transaction involving a “trigger event” (an acquisition of a certain level of control) in certain sectors (including energy) must be notified to the Secretary. The NSIA also provides for voluntary notifications to be made.

Additionally, under the NSIA, the Secretary has the power to “call in” transactions for review where there is concern that they pose a risk to national security.

The regulations issued under the NSIA prescribe that the NSIA regime applies to investments into the following oil and gas activities:

• Upstream oil and gas: in relation to qualifying entities involved with upstream petroleum facilities, such as terminals, pipelines and related infrastructure, and those with a petroleum licence under Section 3 of the Petroleum Act 1998;
• Downstream oil: in relation to qualifying entities involved in the import, storage and transportation of crude oil in the UK, as well as the import, refining, storage and distribution of refined products in the UK; and
• Downstream gas: in relation to qualifying entities involved in onshore processing, transportation and distribution of natural gas, including owners and operators of LNG infrastructure.

The UK has a sanctions regime restricting, and in some cases prohibiting, investment in oil and gas sectors in jurisdictions where it is deemed such activities could support geopolitical threats, human rights abuses or sanctioned regimes. The sanctions regime is enforced by the Office of Financial Sanctions Implementation, and entities that breach it can be sanctioned themselves. For example:

Broad Import/Export Sanctions

• North Korea is subject to blanket sanctions which prohibit any investment in Korean energy, including the import of refined petroleum products.
• Russia is subject to sanctions which prohibit the import, acquisition, supply and delivery of Russian oil and oil products into the UK (and associated ancillary services). The Russian sanctions prohibit (a) the import of all oil and oil products that originate in, or are consigned from, Russia; (b) the direct or indirect acquisition of oil and oil products that originate in Russia or are located in Russia, with the intention of bringing those goods to the UK; and (c) the direct or indirect supply or delivery of oil or oil products from a place in Russia to the UK. The ban applies to the entirety of the prohibited activity, including acts that occur outside of the UK.

Individual Entity Sanctions

• Venezuela has several specific individuals and entities that are subject to UK sanctions. As such, caution is advised when handling business in Venezuela to avoid sanctions.
• Myanmar has 25 individuals and 33 entities designated under the Myanmar sanctions regime, including the Myan-Oil Company Limited for being associated with Asia Sun Group Company Limited (another sanctioned entity). Asian Sun Group Company Limited was previously controlled by Zaw Min Tun, a Myanmar businessman previously sanctioned by the UK in 2023 for making aviation fuel directly or indirectly available to, or for the benefit of, the Myanmar security forces.

Office of Financial Sanctions Implementation: https://www.gov.uk/government/organisations/office-of-financial-sanctions-implementation

UK Sanctions List: https://www.gov.uk/government/publications/the-uk-sanctions-list

The principal environmental laws having jurisdiction over upstream, midstream and downstream operations in the UK are the Petroleum Act 1998, Energy Act 2008, Energy Act 2011, Energy Act 2016, Environment Act 2021 and Energy Act 2023.

The Petroleum Act 1998 established a legal framework for offshore installations and set out licensing requirements for petroleum exploration and production.

The Energy Act 2008, while implementing UK energy policy at the time, improved the offshore oil and gas licensing regime and enabled the Department for Business, Enterprise and Regulatory Reform to carry out its regulatory functions more effectively. It also allowed the Oil and Gas Authority, as it then was, to grant licences in respect of carbon storage (Section 18(11)).

The Energy Act 2011 consolidated existing provisions for third-party access to upstream oil and gas infrastructure, and streamlined procedures to facilitate determinations by the Secretary where required.

The Energy Act 2016 established the Oil and Gas Authority (now NSTA) as an independent regulator, granting it powers over the licensing and regulatory functions previously held by the Secretary.

The Environment Act 2021 is the UK’s legal framework for environmental protection, setting environmental targets and establishing the Office for Environmental Protection.

The Energy Act 2023 introduced measures to mitigate the environmental impacts of offshore facilities, introduced potential charges for the abandonment of offshore installations, updated the model clauses of petroleum licences to require NSTA’s consent to a change in control of the licensee, and gave NSTA the power to request information about change in control of licensees.

As previously mentioned, OPRED (part of DESNZ) is responsible for regulating environmental and decommissioning activity for offshore oil and gas operations, including CCS operations, on the UKCS. HSE is Britain’s national regulator for workplace health and safety, and together with the OPRED, forms OMAR. OMAR functions as the UK’s offshore competent authority and oversees industry compliance with the relevant offshore legislation.

After obtaining a licence, licensees require a DPC, as outlined in 2.7 Development and Production Requirements. In parallel, a private investor will be required to submit an environmental statement to OPRED as part of the consent process.

The environmental statement will set out key information including key environmental impacts and sensitivities.

HSE regulates risks to health and safety arising in the offshore industry. Operators/owners are required to:

• prepare a safety case that demonstrates they have the ability and means to control major accident risks effectively;
• consult the installation’s safety representatives in the preparation, revision or review of the safety case;
• operate the installation in compliance with the arrangements described in the current safety case;
• maintain the integrity of the installation’s structure, process plant, temporary refuge and all other equipment; and
• maintain the integrity of the wells and the pipelines throughout their life cycle (this applies to well operators and pipeline operators).

Decommissioning is required at the end of an offshore installation’s operational lifetime (i) to manage potential environmental impacts (usually the risk of oil, gas and chemical leaks) and (ii) for navigational safety reasons.

The decommissioning of offshore oil and gas installations and pipelines on the UKCS is controlled through the Petroleum Act 1998. OPRED is responsible for ensuring the requirements of the Act are complied with.

The Act requires owners to set out the measures required to achieve the decommissioning of disused installations and/or pipelines in a decommissioning programme when required by the Secretary.

Section 29 Notices

The Secretary can serve a notice under Section 29 of the Act requiring the submission of a costed decommissioning programme for each offshore installation and submarine pipeline.

The abandonment programme must:

• contain an estimate of the cost of the measures proposed;
• specify the times required to take the measures (or make provision as to how the times will be determined); and
• include provision for any continuing maintenance if it proposes the installation or pipeline be left in position.

Section 29 notices can be served on: operators, licensees, JOA parties, pipeline owners and installation owners (for example floating, production, storage and offloading owners, but not anyone with a security interest under a loan such as a bank).

International Law

The UK is party to the Convention for the Protection of the Marine Environment of the North-East Atlantic 1992 (OSPAR) aimed at protecting the North-East Atlantic marine environment. Decision 98/3 of the OSPAR Commission prohibits the dumping or leaving of disused offshore installations within the maritime area and provides that all installations positioned after 9 February 1999 must be completely removed. The founding principle is that a clear seabed should be left after the lifetime of an installation.

Decommissioning Security

In order to manage liabilities and provide security for future costs of decommissioning, it is industry practice for parties in offshore operations to enter decommissioning security agreements. Offshore Energies UK, a leading representative for UK offshore energy participants, provides two standard templates: (i) for fields subject to petroleum revenue tax and (ii) for all other circumstances.

Abandonment

In compliance with its “Wells Consent Guidance”, NSTA expects wells to be abandoned in a timely manner. On a case-by-case basis, and depending on circumstances at that time, NSTA may consider consenting to a request to suspend a well for a period longer than two years subject to, among other things, submission of a satisfactory detailed well abandonment strategy and plan. In such instances, the period of any such suspension will be determined by NSTA and will generally not exceed five years.

Climate Change Act 2008 (as Amended in 2019)

The UK’s primary climate change legislation is the Climate Change Act 2008, which was amended in 2019 to set a legally binding target of net zero greenhouse gas emissions by 2050 (“the Act”).

The Act establishes a framework for reducing emissions and adapting to the impacts of climate change, including legally binding carbon budgets and regular risk assessments. The Act also provides for emissions trading schemes and introduces a framework by which the government can require certain entities to prepare a report on proposals for adaptation to climate change.

Carbon budgets

The Act requires the government to prepare “carbon budgets”, setting targets for five-year periods with accompanying policies to meet the set targets, which are monitored by the Climate Change Committee. The UK has set six carbon budgets, and the seventh is due to be legislated in or around June 2026.

In the most recent carbon budget of 2021, the UK government introduced the Carbon Budget Order requiring greenhouse gas emissions to be cut by 78% by 2025. The government also published a Net Zero Strategy, which includes a commitment to end the UK’s domestic contribution to man-made climate change by 2050 and oil and gas-specific provisions for a new Climate Compatibility Checkpoint for future licensing on the UKCS.

Methane Reduction

In 2022, the UK signed the Global Methane Pledge to collectively reduce global methane emissions by at least 30% by 2030, in comparison to 2023 levels.

Carbon Taxes

While the UK does not have a singular carbon tax in the traditional sense, it has several mechanisms in place as follows:

• UK Emissions Trading Scheme: The UK has a carbon pricing structure through a cap and trade scheme, which replaces the UK’s participation in the EU Emissions Trading System following the UK’s exit from the EU.
• Carbon Price Support (CPS): In 2013, the UK introduced a CPS mechanism which provides incentives for companies to reduce emissions, including through increasing the price paid for carbon dioxide emissions and taxing fossil fuels used for electricity generation. This is implemented by means of changes to the climate change levy and fuel duty.

The UK government will introduce the UK Carbon Border Adjustment Mechanism on 1 January 2027 to ensure highly traded, carbon-intensive products from overseas will have comparable carbon prices to those that would be paid if they were produced in the UK.

In the UK, local government has a role in regulating oil and gas developments through the local planning system, but ultimate responsibility for granting licences and consents for oil and gas activities sits at the central government level and with NSTA. This is not to say that UK local governments have no sway, but rather that they cannot unilaterally halt operations.

For example, in 2015, Lancashire County Council refused permission to extract shale gas at a site on the grounds of noise and traffic impact, but Cuadrilla (the applicant) appealed to the Secretary, who subsequently ruled in its favour.

The UK’s energy transition is supported by the following major laws:

• The Climate Change Act 2008 (as amended in 2019) sets the UK’s long-term climate targets, legally committing the UK to net zero emissions by 2050.
• The Energy Act 2013 established the UK’s Electricity Market Reform network through: (i) a Capacity Market to ensure reliable supply of electricity through the transition; and (ii) Contracts for Difference.
• The Energy Act 2023 introduced a new economic regulation and licensing framework for carbon dioxide transport and storage for CCS.
• The Great British Energy Bill was passed in May 2025 and is aimed at accelerating the adoption of renewable power generation in the UK. It provides for over £8.3 billion in funding over the course of the current parliament, which includes funding initiatives such as £300 million for offshore wind supply chains.

The UK’s legislative framework is bolstered by government programmes such as its Modern Industrial Strategy with its accompanying Clean Energy Industries Sector Plan setting aside funding for frontier clean energy industries.

Transitional assets are being used in connection with energy projects in the UK. Notable examples include CCS and electrification initiatives, as outlined below.

CCS

NSTA aims to accelerate CCS deployment by reusing oil and gas infrastructure such as reservoirs, wells, platforms and pipelines to save capital expenditure. Where OPRED is considering a decommissioning plan, it must consult with NSTA, which will consider whether there is potential to reuse the asset rather than decommission it.

Electrification

Oil and gas platforms on the UKCS are generally powered by gas or diesel, but NSTA is moving towards electric alternatives, and new offshore oil and gas infrastructure has been designed with electrification in mind.

The linking of oil and gas licensing to the UK’s net zero target is evidenced by the introduction of Climate Compatibility Checkpoints for licensing rounds, as discussed in 5.5 Climate Change Laws. This means that there are fewer production and exploration licences being awarded and there is greater scrutiny on emissions and the carbon life cycle of a prospective project.

In November 2019, the UK government imposed a moratorium on shale gas fracking. This was briefly lifted in 2022, but was reinstated shortly after. At present, fracking is banned in England.

The UK does not produce LNG. The UK imports LNG to meet energy needs, but also has the capacity to re-export it to other European countries. There are no LNG liquefaction plants in the UK.

There are no special LNG laws in relation to the development of LNG projects, but the Energy Act 2008 requires importers to obtain offshore unloading licences from NSTA. Applications for a gas storage and unloading licence are sent to NSTA, which makes decisions on a case-by-case basis according to its licence assessment criteria.

The UK was the first G7 country to legally commit to reaching net zero by 2050.

The UKCS is a mature basin and provides for one of the largest decommissioning markets in Europe fuelled by a push for sustainable decommissioning practices. Accordingly, the UK is positioning itself as a global leader in decommissioning services.

There have been two material changes in oil and gas laws and regulations over the past year:

• EPL: In the autumn budget of 2025, EPL was increased from 35 to 38%, raising the total headline rate of tax on oil and gas upstream operations to 78%.
• Finch ruling: In June 2024, the Supreme Court issued its judgment in Finch v Surrey County Council & Others, requiring regulators to consider scope 3 emissions from the burning of oil and gas in Environmental Impact Assessments for new projects.