Serica Energy could cut investments due to ‘punitive taxes’
- Oil and gas production in the North Sea is currently taxed at a nominal rate of 75%
- The new Labour government has promised to increase the energy tax to 38%
Serica Energy has warned it could cut back on investments due to ‘unjustifiably high’ tax rates amid changes to the government’s energy profit levy (EPL)
North Sea oil and gas production is currently taxed at a global rate of 75 percent, including a 35 percent EPL introduced two years ago in response to rising energy prices.
The new Labour government has promised to increase the EPL to 38 per cent, extend its term until the end of this parliament and abolish the investment allowance which provides tax relief for extractive activities.
Penalty: North Sea oil and gas production is currently taxed at a nominal rate of 75 percent
Mid-tier British oil and gas companies have been fiercely critical of the windfall tax, saying it discourages domestic investment and leaves companies struggling to remain profitable.
Serica said the investment was necessary to continue operations and was a “lifeline” to its UK supply chain, on which it has spent more than £1 billion over the past five years.
It warned that “similar spending will be lost in the future” if government taxes make future investments unprofitable.
The company called the Buchan Horst field in the North Sea a project whose future depends on “an appropriate tax regime”, including full tax deductions for capital expenditure.
Chris Cox, CEO of Serica, said: ‘Despite an unjustifiably harsh tax regime… it is clear that our production assets continue to generate cash thanks to our investments in our assets and our streamlined operating model.’
The group said the producing fields are profitable and are expected to generate more than $500 million in the coming years, assuming existing capital commitments and commodity prices remain at current levels.
Additionally, the company said revenue for the first six months of 2024 fell about 15 percent to $462 million, primarily due to an unplanned outage at its Triton node in May.
Due to the problems at Triton, Serica expects average production this year to be at the low end of its previously forecast range of 41,000 to 46,000 barrels of oil equivalent per day.
Revenue was also impacted by lower gas prices, which averaged 73 pence per thermal unit, compared with 108 pence per unit in the same period last year.
Pre-tax profit fell about 30 percent to $188.5 million, while after-tax profit fell $16 million to $82.5 million.
Despite this, the company is keeping its interim dividend unchanged at 9p per share, having recently completed a £15m share buyback programme.
helmsman added: ‘Our confidence in our cash generation prospects, together with our strong balance sheet, provides us with capital allocation opportunities.
‘The most important thing here will always be supporting material shareholder returns.’
Serica Energy shares Late on Tuesday afternoon, shares fell 4.6 percent to 111.7 pence, representing a loss of around 51 percent since the start of the year.
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