UK North Sea's Top Oil Company Concerned About Increasing Windfall Tax Impacting Investments

The CEO of Harbour Energy, the largest UKCS producer, has expressed concerns that the UK government's plan to increase the windfall tax on North Sea oil and gas producers could deter investments in the region. This comes at a time when the UK still relies on oil and gas for the foreseeable future, as reported by the Financial Times.

Rising Energy Profits Levy

The Labour Party, which assumed power in the UK following a landslide victory in the July general election, announced in July its intention to raise the Energy Profits Levy (EPL) to 38% from 1 November 2024, up from the current 35%. This would increase the headline rate of tax on upstream oil and gas activities to 78%, a 3% rise from the current 75%. The levy is also set to be extended by a year to 2030.

Criticism from Harbour Energy's CEO

Harbour Energy's CEO, Linda Cook, has been a vocal critic of the levy since it was first introduced by the previous UK government in 2022. She expressed to the Financial Times that an increase in the windfall tax would make it even more challenging to attract investment to the UK. Cook stated, "The fiscal regime in a lot of the other countries — in all of the other countries — in which we will have a presence will be more attractive" than the UK North Sea.

Warnings from the UK Offshore Industry Group

Earlier this week, the UK offshore industry group OEUK warned that the tax hike would not only reduce viable capital investment from $18.5 billion (£14.1 billion) to just $3 billion (£2.3 billion) for the period 2025 to 2029, but it would also result in $16 billion (£12 billion) lower tax receipts for the country compared to the current tax regime.

Uncertainty for Major New Field Developments

Last week, Equinor, the operator of one of the major new field developments in recent years, Rosebank, stated that it awaits clarity on the UK tax regime by the Labour government before strategizing and committing to investments in the UK North Sea.

Potential Relocation of UK North Sea Producers

As a result of the planned hike in the windfall tax, UK North Sea producers have already warned that they are considering relocating to more fiscally stable jurisdictions such as Norway. Neo Energy, for instance, announced this week that it was slowing down investment due to "fiscal and regulatory uncertainty".

Bottom Line

The proposed increase in the windfall tax by the UK government has raised concerns among North Sea oil and gas producers. With potential investment reductions and the possibility of relocation to more fiscally stable regions, it remains to be seen how this decision will impact the UK's energy sector in the long run. What do you think about this development? Feel free to share this article with your friends. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.