Optics, forecasts and optimism all play a big part in creating a market primed for mergers and acquisitions.
That’s why the expected and long-awaited confirmation that GB Energy will be headquartered in Aberdeen is one to be welcomed. The tangible benefits of GB Energy will unfold over the coming months and years, but from a symbolic perspective, the Labour government’s move to headquarter the organisation in Aberdeen is one that will instil confidence.
The Granite City has unrivalled energy expertise with an abundance of highly investable supply chain companies whose experience, honed in the North Sea oil and gas industry, is eminently transferable into renewables.
We are now just a matter of years away from having massive renewables projects spring up in Scotland and its surrounding waters, and with that brings opportunities for companies in the supply chain to grow if they can secure the investment needed to diversify and build out capacity.
But let’s not kid ourselves. While it will be a welcome addition to Europe’s energy capital, GB Energy isn’t the be all and end all. The Energy Profits Levy, combined with a potential removal of tax allowances, still hangs over the sector like the Grim Reaper stalking its next victim.
OEUK point to the potential £13 billion of damage to the UK economy that this could cause between 2025 and 2029, not to mention the 35,000 job losses that could follow. These numbers are a constant, and sobering, reminder of the consequences that households around the country will have to deal with unless the government backtracks on its plans.
To that end, Starmer and his government must collaborate and show willingness to engage with the sector with far more vigour and honesty than has been the case so far.
© Supplied by PAContrary to popular belief, particularly among some virtue-signalling politicians, the oil and gas industry is not made up of greedy climate deniers who want to squeeze every last drop of oil from the North Sea but instead of companies who want (and need) to do the right thing for their shareholders, stakeholders and the planet. Furthermore, their skills, expertise and knowledge hold the key to unlocking an accelerated energy transition. The current uncertainty with, a potentially, even more punitive and unstable fiscal regime on the horizon is what will prevent them.
With a historically robust pipeline of energy supply chain transactions, we’re seeing a slow-down in M&A activity in the sector relative to others. Uncertainty is not conducive to deals and deal-making and it is undoubtedly a factor in this drop-off.
Introduced as a “windfall” tax in 2022 by the previous Government, the EPL has been subjected to several changes both in terms of the tax rate and its duration since then. With the commodity price hovering around $70, it is hard to find any justification for such a tax and while some may be able to withstand the higher rate from 75% to 78%, the straw that will break the camel’s back is when that is combined with the removal of tax allowances.
Comparison is often made between the UK and Norway. The latter recognises the importance of oil and gas in the transition and offers incentives to ensure oil and gas companies paying a higher tax rate invest in developing renewable technologies and projects. Meanwhile, the UK seems hell-bent on bringing about the premature demise of oil and gas without recognising the repercussions on our ability to transition.
Continuing to support our oil and gas industry, by recognising its role in the energy transition and creating the right environment for investment, is the only way we will reach net-zero within the ambitious timescales.
Let’s rejoice that GB Energy is to be based in Aberdeen but continue to press for sensible policy decisions that will protect jobs and our supply chain and accelerate the energy transition.
© Supplied by Aberdein ConsidineRod Hutchison is a partner at law firm Aberdein Considine
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