Serica Energy (LON: SQZ) chairman Tony Craven Walker has warned that the UK Government’s North Sea taxation is “likely to become unsustainable” with gas prices having dropped.
The windfall tax, introduced last May then raised in November, means the industry is now levied at a headline rate of 75% on profits.
Meanwhile gas prices are now around 80% lower than they were last August, said Mr Craven Walker.
“The Government has raised taxes on the offshore industry to a level which does not reflect current prices or provide for a price floor level.
“This has impacted the smaller companies disproportionately far more than the international companies and is likely to become unsustainable given that prices are now very materially below the levels envisaged when the tax rises were introduced.”
The Serica chairman said this has “had a material effect on the share prices of companies such as Serica” and that it “puts a question mark over the financing of many North Sea projects”.
Banks like BNP Paribas have said they will reduce finance for oil and gas firms, while reserves-based lending (RBL) has dropped significantly across the board due to the levy.
Stable fiscal environment needed
Mr Craven Walker, who will step down at the firm’s AGM next month, delivered the North Sea tax messaging in the Serica Energy annual report, published this week.
For smaller UK upstream companies, many of which are British, he said the role is to “optimise the production of remaining North Sea reserves for the ultimate benefit of the UK at a time when the provision of energy security has never been more important.
“But to do this needs a stable fiscal environment in which we can plan and operate with taxes at a level commensurate with the risks that we take. Setting taxes on profits at the current 75% level without any provision for falling prices drives away the financing which is required.
“It is to be hoped that the Government will review its current policy and derive a new basis upon which companies like Serica can thrive and show the innovation which is needed to bring the full benefit of offshore resources to the UK in parallel with the energy transition efforts being made by the major companies.”
