Oil and gas windfall tax to be shelved if energy prices fall significantly

Oil and gas producers will not pay a windfall tax if energy prices fall to “historically normal levels” for an extended period of time, as announced by the government.

HM Treasury said the measure was needed to encourage investment in the North Sea, protect jobs and improve the UK’s domestic energy supply amid Russia’s full-scale invasion of Ukraine.

Oil and gas companies currently pay an ‘energy profit tax’ of 35 percent on profits from production in the North Sea, in addition to a tax rate of 40 percent.

The UK government estimates that the levy has raised £2.8bn since its introduction by then Chancellor of the Exchequer Rishi Sunak in May 2022 and is expected to raise around £26bn by March 2028.

Money from the levy has been spent supporting households and businesses with their energy bills, which have skyrocketed over the past 18 months due to the conflict in Ukraine and the easing of Covid-related restrictions.

But energy companies have complained that the levy has forced them to cut investment plans, even though they could save 91p in tax for every £1 they invest in new oil and gas production.

Harbor Energy recently announced it would cut 350 jobs and shift spending away from the UK after it stopped bidding for new North Sea projects and saw annual profits virtually wiped out by the windfall tax.

The government has now said petroleum companies will not pay the EPL if oil prices remain below $71.40 per barrel for two consecutive quarters and gas prices remain below 54 pence per therm.

On Friday, a barrel of Brent Crude traded at $76.13 a barrel, while natural gas was priced at 68.4 pence a therm.

Gareth Davies MP, Chancellor of the Exchequer for the Treasury, said: ‘It is so important that we secure investment in our own domestic stock and protect the tens of thousands of UK jobs that come with it.

‘It would be irresponsible to close the taps on the North Sea from one day to the next. Without oil and gas from British waters we would be forced to import even more from abroad, jeopardizing our security of supply.’

Earnings: Many campaigners and politicians believe that cutting the windfall tax is wrong given that some oil and gas companies such as Shell and BP are making record profits

A ban on new investments in oil and gas in the North Sea would increase the UK’s dependence on imports from 50 percent to 80 percent by 2033, according to government and North Sea Transition Authority figures.

The Treasury Department’s decision comes as Norwegian energy giant Equinor prepares to make a decision on the future of Rosebank, a £4.5 billion project that could produce up to 300 million barrels of oil.

But environmental groups strongly oppose the development of the site, with the organization Uplift claiming it would emit more than 200 million tons of carbon dioxide.

Many campaigners and politicians also believe that cutting the windfall tax is wrong, given that some oil and gas companies are making record profits and spending huge sums on share buybacks and dividends.

BP earned £23 billion in underlying revenue and bought about $11.7 billion of its own shares last year, more than double the previous year.

Equally controversial with environmentalists, the company announced a scaling back of its planned target for reducing carbon emissions.

Meanwhile, Shell revealed a record annual profit of £32.2bn for 2022, £1.4bn higher than analysts had predicted, mainly due to rising gas prices.

Alice Harrison, Fossil Fuels campaign manager at Global Witness, said: ‘Now is not the time to ask those companies to pay even less tax. This is a government on the side of the polluters, not the people.’

Harrison further accused the government of “learning nothing from the energy crisis and intends to get back to normal as soon as possible.”

She added: “The fossil fuel industry has used its enormous influence and power to fight the windfall tax, and it is an insult to humanity that it appears to have won.”