AS oil and gas firms enjoy a bonanza in the North Sea experts warn investment in the area could halve soon although the company leading work on the controversial Cambo development reckons ministers will ensure such giant projects go ahead.

Based on current trends, companies operating in the North Sea look set to achieve bumper profits for a second successive year as they benefit from the surge in oil and gas prices fuelled by Russia’s war on Ukraine.

In a recent trading update North Sea-focused Harbour Energy said it expects to generate around $1.5 billion (£1.2bn) cash from its operations this year before tax.

The surge in firms’ profits partly reflects the benefit of investments sanctioned years ago. While North Sea production has long been on a downward trend the rate of decline could slow as big projects are completed this year, such as Shell’s revamp of the Pierce field.

Shell is one of a range of firms that have indicated they still see lots of potential in the mature North Sea.

In July Shell bosses sanctioned the development of the giant Jackdaw gas field east of Aberdeen. In November the company bought control of the undeveloped Victory gas find West of Shetland from Reabold Resources.

Other firms have made North Sea acquisitions in recent months. Equinor bought control of Suncor’s UK business in a $850m deal, which increased the Norwegian giant’s exposure to the huge Rosebank find it hopes to develop West of Shetland. London-based oil trader Prax is moving into the North Sea exploration and production business through the £250m acquisition of Hurricane Energy.

The North Sea Transition Authority noted recently: “Operators plan to progress 22 projects in the coming years which, subject to robust emissions checks, would target 1.5 billion barrels.”

The regulator was pleased by the response to the latest North Sea exploration licensing round. It will release the results in coming months.

The round was launched in October after industry players welcomed signs the UK Government had rediscovered its enthusiasm for the North Sea oil and gas business as it looked to reduce the country’s reliance on imports amid the fallout from the war in Ukraine.

Boris Johnson underlined the importance of the industry when he launched the UK Energy Strategy in April last year.

The strategy was welcomed by industry leaders following a long period in which oil and gas firms came under increasingly vocal attack from environmentalists.

The Scottish Government appears less keen. In the energy strategy it released in January it said there should be a presumption against oil and gas exploration in the North Sea. While UK ministers decide if developments can proceed, the Scottish Government could make life awkward for firms on the planning front.

Recent North Sea deals and the response to the licensing round may reflect expectations that market conditions will remain favourable amid strong global demand for oil and gas. Prices have fallen in recent months but remain high by historic standards.

Yet industry leaders have said firms could slash North Sea investment and raised the prospect of an exodus from the area.

Noting that projects are being deferred in the North Sea, Neivan Boroujerdi, upstream research director at the Wood Mackenzie energy consultancy, warned: “Investment could be less than half what it is in just a few years.”

Mr Boroujerdi said confidence has plunged following the introduction of the North Sea windfall tax, the Energy Profits Levy, last May. The rate of the levy was increased in November and the term extended to 2028, from 2025.

Firms now pay a 75% total rate, including standard corporation tax. The impact of the levy was offset by the introduction of a generous investment allowance but Offshore Energy UK says the tax changes have had a huge impact on sentiment.

In its latest Business Outlook report, the industry body noted: “Investment rates were already relatively low towards the end of the last decade, with many of the remaining projects facing substantial technical and economic complexities. This has been compounded by the pandemic and most recently the EPL and political instability.”

Heavyweights such as TotalEnergies and Harbour Energy have announced cuts in drilling activity recently. Harbour plans to axe around 350 jobs, with Aberdeen set to bear the brunt of the cuts.

Mr Boroujerdi said the windfall tax had made it much harder for firms to justify investment in big projects such as Rosebank and Cambo and even smaller schemes that offer a quicker payback.

There are fears a Labour Government could make things even worse.

Mr Boroujerdi said recent M&A activity should be not be seen as providing evidence of wider industry confidence in the North Sea, arguing firms have acquired assets for company specific factors.

After deciding to shelve plans to develop Cambo on economic grounds, Shell could face challenges in its efforts to sell its stake in the project.

“The list of buyers is short,” said Mr Boroujerdi.

The Israeli-owned firm leading work on Cambo, Ithaca Energy, says the windfall tax been disastrous. Ithaca gained its stake in Cambo through the acquisition of Siccar Point Energy for around $1.5bn in July. The deal also brought Ithaca interests in Rosebank and giant fields that are in production, such as Mariner and Schiehallion.

Executive chairman Gilad Myerson said Ithaca was furious to find that after taking control of Cambo the UK Government “moved the goal posts” by imposing the windfall tax.

He said the Government’s action raised big concerns about the wisdom of deploying large sums of capital in the UK.

However, Mr Myerson insisted Ithaca did not regret buying Siccar Point, noting: “We are here for the long term … The UK is our home.”

While Ithaca is concerned a Labour administration could make the tax situation tougher, Mr Myerson said the company would be keen to work with whichever government is in power to create a more favourable environment for investment.

This will involve developing a “clear and absolutely stable” fiscal policy which includes a supportive and unchanging investment allowance and introducing a sunset clause for the EPL and/or a mechanism to protect producers against falls in oil and gas prices.

Mr Myerson appears confident that ministers will eventually conclude that the UK can’t afford to leave finds such as Cambo and Rosebank undeveloped.

“These fields will be developed: It’s not if, it’s when,” he said, adding: “It is very clear in my mind that the Government will conclude that the right thing to do is to produce our own energy and not be dependent on imports.”

Mr Myerson knows of firms that have expressed an interest in buying Shell’s stake in Cambo.

Asked about the potential for environmentalists to try to obstruct work on Rosebank or Cambo, he said Ithaca would welcome a “constructive and fact-driven” debate with campaigners.

He reckons they will eventually concede that it makes sense to meet the UK’s demand with domestic production that entails lower emissions than imported oil and gas and supports valuable jobs in the country. Regarding Cambo, he said: “I don’t understand how any environmentalist can conclude that it is better for the environment to not develop a low emissions field.”

Arguments in favour of Cambo and Rosebank may be strengthened by fears that while oil giants such as BP and Shell plan to develop big windfarms in the North Sea it may be years before work starts in earnest on projects they are supporting off Scotland.