Revisions to the windfall tax – or energy profits levy – increased the estimated bill of Harbour Energy (LON:HBR) by over $2bn, according to analysis.
Harbour Energy, the North Sea’s largest producer, is one of the strongest opponents to the windfall tax, and analysis from Welligence has shed further light on its impact.
North Sea head John Corr said the firm is now facing a $5.5bn bill for 2022-2028*, equating to around 24% of its profits, due to chancellor Jeremy Hunt’s latest reforms in November.
The windfall tax was first introduced by then-chancellor Rishi Sunak in May 2022 at a 25% rate, increased to 35% in November by Jeremy Hunt.
Mr Corr set out how that has impacted Harbour.
“Under the old system, Harbour’s EPL payments basically over the 2022 – 25 period were about $3bn, or around 19% of their profits went into the EPL.”
When Hunt’s changes came in “it went from $3bn to, in our estimates, $5.5bn. So overnight it’s a $2.5bn add and it amounts to 24% of their profits over the period.”
© George Cracknell Wright/LNP/ShutHarbour is so hard-hit due to a lack of spending pipeline to take advantage of an investment incentive linked to the EPL.
Mr Corr compared Harbour Energy to Equinor, the operator of the huge Rosebank project in the West of Shetland, which is hugely insulated against the EPL.
It is understood that Welligence’s $5.5bn figure would be at the very top end of analyst concensus for Harbour through to 2028.
Harbour, which did not comment on the stats, issued a trading update on November 3 saying its total tax liabilty for 2022 would be $900m, of which just $400m is linked to the EPL.
Windfall tax
The levy’s investment incentive mechanism – repaying 91p for every £1 spent – means companies spending on new projects will see relief.
“Although Harbour have, according to us, over $1.5bn of capex, coming up over the next three years or so, it really hurts,” Mr Corr said.
“That’s a function of portfolio maturity, having access to projects of scale.
“You look at the opposite end of the scale at Equinor – modest production but huge capex coming up in the West of Shetlands in Rosebank. At least proportional to their production.”
Only six big projects
There are only six projects in the UK sector coming up with capital expenditure of more than $500m, Mr Corr told the Scottish Energy Forum in November.
Those are: Clair and Clair South (BP), Cambo (Ithaca) and Rosebank (Equinor) in the West of Shetland, alongside Mariner (Equinor) in the Northern North Sea and Captain (Ithaca) in the Central North Sea through its enhanced oil recovery project.
“If you don’t have equity in these, when you’re of Harbour’s scale, it’s very difficult to offset the EPL,” said Corr.
Will they exit?
Mr Corr said the windfall tax is designed to incentivise spending, but warned it could have the opposite effect.
Deirdre Michie, the former CEO of trade body OEUK warned the chancellor that increasing the levy, as he did at the end of last year, could see companies exit.
“For companies like Harbour, which are critical to the North Sea, having these knee-jerk tax takes its worrying and it could force them to look elsewhere.”
Equinor
Under the old windfall tax, when the rate was set at 25%, Equinor faced a bill of just $130m, according to Welligence, for 2022-2025, due to Rosebank investment.
The increased levy “didn’t really change much”.
He added: “In fact it made it a little bit better because there’s more spend in 2026 on Rosebank, which gives them forward shielding. So over the period it’s about 8% of their profits.”
Don’t panic…
Looking ahead, Mr Corr recounted pledges from the Conservative government that the tax won’t now change until March 2028.
That might be true – but not if Labour, who firmly advocate harsher taxes on oil and gas, get into power at the next general election.
“The Conservatives have said this tax won’t change now until 2028 – someone needs to tell them there’s an election coming and if Labour get in it could all change again.
“So I think it’s a worrying move, I think the EPL shows a disconnect between politicians and what’s happening in the North Sea. And overall a lack of understanding.”
*An earlier version of this article noted Welligence’s estimate as 2022-2025. Welligence has since stated their estimate is for the period to 2028.
Recommended for you
