Rosebank: private profit, public risk

If approved, Rosebank, the UK’s largest undeveloped oil field, is projected to generate billions in profits for its private developers, Equinor and Ithaca Energy. But new analysis shows that it is UK taxpayers, not the companies, who would foot most of the bill – and could lose millions.

This briefing examines Rosebank’s projected profitability under different oil price scenarios, revealing the central role of the UK tax regime in enabling private profit and the risk that the UK Exchequer would take in granting the field approval. 

The findings are stark: in the base-case scenario, Equinor and Ithaca would earn £1.5 billion in profit from Rosebank, while the UK government would incur a net loss of £258 million.

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The Rosebank oil field

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The weak economic viability of Rosebank has long held up its development. Located in the deep and choppy waters west of Shetland, it was first discovered in 2004, but it wasn’t until 2018, when it was acquired by the Norwegian state-owned oil company Equinor, which holds an 80% stake in Rosebank, that progress was made on developing the field. 

Rosebank has since become a flashpoint in the UK’s fossil fuel debate. This includes having its approval by the previous government ruled unlawful by the Scottish Court of Session last year on climate grounds, following Uplift’s successful legal challenge.

Despite needing to reapply for permission to develop Rosebank, Equinor has continued to invest in developing the field at its own financial risk. Most of the capital expenditure on the field will occur between 2023, when Equinor took the decision to invest in the first phase of the project, and 2027, when production is projected to start. 

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The generosity of the UK tax regime

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To work out who profits – and who pays – from Rosebank’s development, it is necessary to understand a little of the UK’s oil and gas tax regime.

Currently, oil and gas companies pay a headline rate of 78% on any profits they make from North Sea drilling. This includes a special rate of corporation tax (for extracting a finite UK resource), a supplementary charge and an additional temporary windfall tax – the Energy Profits Levy – which was introduced in response to soaring energy prices following Russia’s invasion of Ukraine. Starting at 25%, the added levy rose to 35% in 2023 and 38% in 2024. 

There have been howls of protest from the oil and gas industry since the incoming Labour government raised the tax last year, with claims that it is leading to the premature shutdown of the North Sea. The 78% headline tax rate, however, is not the whole story.

The UK tax regime for oil and gas includes extremely generous investment reliefs, allowing oil and gas companies to write off most of their development costs before profits are taxed. In 2023, this meant that oil firms could deduct up to 91% of their capital investment, leaving them to cover just 9% of upfront spending. Changes in 2024 saw this figure rise to 16% of most investment costs, leaving UK taxpayers to now effectively cover 84% of the development costs of new projects, like Rosebank. So while the rates of tax are higher for oil and gas companies than in the rest of the economy, so are the tax breaks.

This tax structure leads to a situation where oil and gas companies profit even when oil and gas prices drop, while the public bears all the risk. Equinor will make most of its investment while the generous reliefs are switched on, but it will generate most of its profit after 2030, when the windfall tax is no longer in effect. Conversely, the public tax breaks are handed out now, but the tax receipts will be collected when the tax rate is lower. This situation is exacerbated because of inflation and financial risk: a pound spent today is worth more than a pound returned years later. 

The fact that the UK government carries the financial burden upfront, while the companies delay their exposure until the project is profitable, makes Rosebank a high-risk venture for the public and a low-risk, high-reward deal for private operators. It’s little wonder Equinor’s CEO described the UK’s tax breaks as “helpful”.

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Private profit, public risk

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Quantifying the risk Rosebank presents to the public purse requires analysis of the economics of the field based on where oil prices might be in the future. This analysis, conducted by WWF Norway, modelled two long-term price scenarios: 

• a base case of $70 a barrel representing the long-term average oil price, and 
• a low case scenario of $40 a barrel, which is what is predicted to happen to oil prices if governments take decisive action on climate change, resulting in lower global demand for oil and lower prices (for example, the International Energy Agency’s Net Zero 2050 forecast is for $25/barrel).

In the base case scenario of $70 a barrel, Equinor and Ithaca Energy would make a £1.5 billion profit, while the UK Government would suffer a net loss of £258 million. 

If global efforts to limit warming succeed and oil prices fall, Rosebank’s backers still remain profitable, propped up by the tax regime, but the UK losses balloon. In this scenario of $40 a barrel, the developers would make £445 million in profit, but the Treasury’s loss could reach £1.3 billion.

According to the analysis, the only way for the UK Exchequer to make money from Rosebank is if the oil price stays above $70 for many years. 

The need for reform

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The economics of Rosebank illustrate the UK’s broken system for oil and gas taxation and the need for reform. Despite the UK’s international climate commitments, its tax policy continues to reward oil extraction, passing risk to taxpayers while insulating corporations from market realities. This is not just incompatible with the UK’s climate obligations, it’s poor economics. Given Rosebank’s risk to the public purse, no serious Chancellor should give it their backing.  

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Methodology

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WWF Norway evaluated the projected financial outcomes of the Rosebank oil field using Rystad Energy data on production volumes and investment timelines. While previous exploratory costs are excluded from this analysis due to their relatively small size, the full investment costs from 2023 onward are included. The analysis only covers phase 1 of the Rosebank project. If Equinor decides to invest in a second phase of the project, work would commence in the mid-2030s; however, it would require additional approval from UK regulators. In this scenario, the Net Present Value across both project phases and price scenarios would also be negative for the Exchequer.

Cash flows for both the operating companies and the UK government were modelled from 2023 (final investment decision) through 2061 (decommissioning), under two oil price scenarios: a base case of $70 per barrel and a low case of $40 per barrel (in 2023 values). 

A nominal discount rate of 10% was applied to reflect standard industry expectations for risk-adjusted returns. All figures were adjusted to 2023 real terms. This analysis updates previous analyses conducted by WWF Norway and Uplift under the previous versions of the windfall tax.

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