North Sea observers say planned changes to the windfall tax on oil and gas firms will “hasten the demise” of investment in the region.
Operators are today assessing the impact after Chancellor Rachel Reeves yesterday confirmed the Energy Profits Level (EPL) will increase from November.
The Treasury announcement said the EPL will increase to 38%, an increase of 3%, bringing the headline rate of tax on upstream oil and gas activities to 78% in total.
The Labour government will also remove the “unjustifiably generous” main investment allowance attached to the EPL and extend the policy until March 2030.
Capital allowances will be retained, although at a reduced level, while the decarbonisation investment allowance will also stay in place.
Labour also retained the Energy Security Investment Mechanism (ESIM), which will see the EPL end if oil and gas prices fall below a set threshold.
The Treasury said money raised from the EPL measures “will support our clean energy transition, increasing security, and providing sustainable jobs for the future”.
The announcement prompted a strong reaction from the offshore sector and Aberdeen business leaders, with warnings about the impact on investment and jobs.
Aberdeen Grampian Chamber of Commerce called the decision “reckless, wrong and economically ruinous” and said it will put the UK energy transition “at risk”.
Meanwhile, Offshore Energies UK chief executive David Whitehouse said the announcement “jeopardises jobs” in communities across the country.
“We recognise the government has significant spending challenges to manage but today’s announcement will only serve to rock confidence further,” he said.
Jersey assessing impact to Greater Buchan Area
This morning, Jersey Oil and Gas (AIM:JOG) said it will “carefully consider” the impact of the EPL changes to its Greater Buchan Area joint venture with Serica Energy and NEO Energy.
JOG said the full implications will “only be clear when the level of capital allowance claims available as deductions to the EPL are provided in the October budget”.
© Supplied by M.BudgeShares in the firm plunged by more than 13% in early trading on Tuesday.
Norway ‘laughing all the way to the bank’
Panmure Gordon director and oil and gas research analyst Ashley Kelty branded the EPL changes “utter economic insanity” that will “hasten the demise of the North Sea”.
“While the virtue signalling points raised will be significant, the clear takeaway is that the new government has zero understanding of the energy transition, energy security or markets,” Kelty said.
“The irony is that this policy will mean that the ‘hard working people’ of the UK will face both higher energy bills and taxes to pay for the expensive renewables promised and the vast amounts of imported fuels needed, whilst also increasing the risk of blackouts and fuel shortages.
“The net cost to the UK will also be higher as this move will accelerate decommissioning of fields in the North Sea with the tax credits granted for that far outweighing any revenues generated by the higher EPL.”
Kelty said the Norwegian government will be “laughing all the way to the bank” as companies “flee the UK” to take advantage of Norway’s incentives.
© Photographer: Carina Johansen/Bl“It beggars’ belief that the Labour Party didn’t bother to look at the success of the Norwegian fiscal regime and how that has generated record new investment in oil and gas,” he said.
‘Rushed’ announcement
Serica Energy chief financial officer Martin Copeland criticised the new UK government for a lack of consultation,, saying it “rushed out an announcement” on the EPL.
Copeland said the changes extend the wind fall tax “despite no windfall conditions” and “continues to leave material uncertainty” whilst singling out the oil and gas sector.
If the changes are implemented in the budget in October, Copeland said they would be a “blow to energy security, to UK jobs and to the emissions of UK energy demand”.
Meanwhile, Hartshead Resources NL subsurface manager Simon Haworth called the EPL changes a “terribly bad idea”.
Australia’s Hartshead has been one of the strongest critics of Labour’s EPL policy position.
Its CEO Chris Lewis told Energy Voice earlier this year that the firm was ‘days away’ from issuing contracts for a North Sea development when Labour’s promise to introduce a “proper windfall tax” sparked job cuts.
Writing on social media, Haworth said the EPL changes will lead to investment flight from the UK, higher consumer costs, job losses, and energy security risks.
“Companies seeking a more stable and predictable tax environment now highly likely to move their operations and investments to other countries, leading to a decline in industry growth and innovation within the UK,” Haworth said.
Recommended for you
