Windfall tax is bad for business: Oil giants warn of North Sea exodus
Windfall tax is bad for business: As Harbor Energy profits are ‘virtually wiped out’, oil giants warn of North Sea exodus
Senior figures in the UK oil and gas industry warned last night that the government’s punitive windfalls are ‘bad for business’.
Trade association Offshore Energies UK (OEUK) said several companies have expressed concern about the future of the North Sea and the risks associated with investing there.
The comments came after Harbor Energy, the largest oil producer in the North Sea, said its profits were “all but wiped out” by the windfall tax last year.
Warning: Industry association Offshore Energies UK said several companies have ‘expressed concern about the future of the North Sea and the risk associated with investing there’
It said it was now shedding jobs and investment in the North Sea and looking to expand abroad.
OEUK said Harbor was not alone in expressing concerns.
It said French giant TotalEnergies has slashed its North Sea investment plans by £100m for 2023 alone, while London-listed group EnQuest has decided to halt drilling at its Kraken oil field as a result of the levy.
The International Association of Drilling Contractors also warned the government last month that the North Sea faced an ‘exodus’ of skills and equipment as the industry sought better opportunities elsewhere.
Mike Tholen, sustainability director at OEUK, said the announcements were ‘a strong reminder that the windfall tax and the uncertainty it brings is ultimately bad for business’.
He added that the industry needs “stable regulation, predictable competitive taxation and, above all, long-term planning and leadership from politicians of all parties.”
In a gloomy stock market update, Harbor Energy reported an after-tax profit of just £6.7m for 2022, up from £85m in 2021, due to a £1.3bn levy related to the windfall tax.
This had ballooned to nearly £2.1bn by 2022 from £264m the previous year despite the company’s pre-tax profit, before taking into account the cost of the levy, as it cashed in on energy prices that had risen sharply after the outbreak of war in Ukraine.
Shares of Harbor rose 0.4 percent, or 1.1 pence, to 288 pence. Boss Linda Cook said the government’s windfall tax, which imposes an effective tax rate of 75 per cent on North Sea profits, has had a “disproportionate impact” on Britain-focused oil and gas companies that are “critical to domestic energy security” .
She said the windfall tax ‘virtually wiped out our profits for the year’, adding: ‘This has prompted us to reduce our investment in the UK and headcount.
“Given the country’s fiscal instability and investment prospects, this has also reinforced our strategic objective to grow and diversify internationally.”
Russ Mould, director of investment at AJ Bell, said: “Given that companies like Harbor Energy have the opportunity to invest elsewhere, there is a risk that the UK’s energy security will be undermined by understandable moves towards tax gains, which have undeniably been boosted by the knock-on effects . consequences of the invasion of Ukraine.’