MARKET REPORT: Lukewarm response to windfall tax change
MARKET REPORT: Oil stocks rise as investors tentatively welcome plans to ease windfall tax
Oil stocks rose as investors cautiously welcomed plans to ease windfall tax.
In a bid to boost production in the North Sea, the Treasury Department said it will cut the tax rate on profits from 75 percent to the previous level of 40 percent if oil and gas prices normalize for at least six months.
The energy profit tax was introduced in May last year when the industry benefited from the sharp rise in energy prices following the Russian invasion of Ukraine.
The tax rate will be waived as long as oil and gas prices fall to or below $71.40 per barrel and 54 pence per therm for two consecutive quarters. Prices last reached these levels in 2021, with oil currently priced at $76 per barrel, while gas costs around 63p per therm. That’s a far cry from when Brent oil peaked at $130 a barrel last year and gas rose to £6 a therm.
Harbor Energy gained 2 percent, or 4.9p, to 251p, Enquest added 4.1 percent, or 0.63p, to 16.14p, Serica Energy rose 3.4 percent, or 8.2p, to 250p and Ithaca Energy was up 4.9 percent, or 7.2p, to 153.2p. Major oil explorers, much less dependent on the North Sea for their business, were little moved as BP fell 0.8 percent, or 3.75 pence, to 471.6 pence, while Shell fell 0.6 percent, or 14.5 pence. pence dropped to 2294.5 pence.
Windfall tax: The energy profits tax was introduced in May last year as the industry took advantage of rising energy prices after the Russian invasion of Ukraine
The levy was introduced to support households struggling with sky-high energy bills.
It has raised £2.8bn and will remain in place until March 2028, and is expected to raise almost £26bn in total.
But growing concerns that the measures will hamper investment, undermine energy supplies and cost jobs have forced Chancellor Jeremy Hunt to change course.
According to industry organization Offshore Energies UK (OEUK), the oil and gas sector in the North Sea provides work for 215,000 jobs.
David Whitehouse, chief executive of OEUK, said: ‘We’ve always been clear that when the windfalls go away, the windfall tax has to go. This is a step in the right direction.’
Panmure Gordon’s Ashley Kelty described the move as ‘nothing more than putting lipstick on a pig’, while Stifel analysts warned closing the North Sea would mean a loss of £20bn in tax revenue. In March, Harbor Energy boss Linda Cook said the windfall tax “virtually wiped out our earnings for the year.”
The FTSE 100 fell 0.5 percent, or 37.38 points, to 7562.36 and the FTSE 250 fell 0.1 percent, or 15.89 points, to 19,091.66.
Investors in Croda International were shocked after the chemical group said earnings would be lower than hoped as customers are using existing stocks rather than buying more. The company, which extracts essential ingredients used in anti-aging skin creams, said profits for the year to the end of May are expected to be between £370m and £400m, less than the £440m expected by analysts. . It dropped by 12.5 percent, or 750p, to 5274p.
CMC Markets took a 33 percent stake in blockchain solutions company Strikex Technologies. The trading company, led by Tory colleague Lord Cruddas, said its arm’s length investment will help it grow. It fell 3.1 percent, or 5.4 pence, to 169.8 pence.
There was good news for the defense sector after BAE Systems won a £270 million ten-year contract from the Ministry of Defense to support the Royal Navy’s three main radar systems. It rose 0.1 percent, or 1.2 pence, to 940 pence.
But S4 Capital fell 2.9 percent, or 3.8 pence, to 125.3 pence after the ad firm warned that revenues rose more slowly in the first four months of the year than the same period in 2022.
Traders sprinted toward the Shoe Zone — up 10.7 percent, or 22.5 pence, to 232.5 pence — following the shoe company’s strong summer sales. Profit for the year to October 2 should be at least £10.5m compared to a previous forecast of £8.5m.