The British government plans to increase a windfall tax on North Sea oil. This would lead to a nearly 12 billion pound ($16 billion) drop in revenue for gas producers in the state. It would also accelerate a decline in output, an industry group said on Monday.
Green Ambitions
The Labour government said the changes will help to achieve a ramp-up in renewable power. The government was recently elected in July. It said a shift from oil and gas will reduce carbon emissions and help curb global warming.
Industry group Offshore Energies UK forecast the changes would reduce tax revenue by 12 billion pounds between 2025 and 2029 compared to the current tax regime.
Industry Concerns
Capital investment in the sector over the period is expected to fall to 2.3 billion pounds from around 14 billion pounds, OEUK said.
The proposed tax changes “will trigger an accelerated decline of domestic (oil and gas) production. A corresponding reduction in taxes paid, jobs supported, and wider economic value will be generated,” OEUK CEO David Whitehouse said in a statement.
North Sea focused NEO Energy said the fiscal and regulatory uncertainty would slow investment across its portfolio.
NEO owns half of the Buchan Horst development project in the UK North Sea. Serica Energy and Jersey Oil & Gas own 30% and 20%, respectively.
Oil Production Faces Uncertain Future
Production in the mature North Sea basin has declined. From a peak of 4.4 million barrels of oil equivalent per day (boed) at the start of the millennium, it is down to around 1.3 million boed today.
The North Sea Transition Authority (NSTA) regulator has forecast it will decline to less than 200,000 boed by 2050.
Shortly after its election, Britain’s Labour government said it would increase the Energy Profits Levy to 38% from 35% starting Nov. 1. This brought the headline rate of tax on oil and gas activities to 78%, among the highest in the world. Its duration was also extended by a year to March 2030.
The changes will also include scrapping the levy’s 29% investment allowance. This will let companies offset tax from capital that is re-invested.
A Treasury spokesperson said: “We are committed to maintaining a constructive dialogue with the oil and gas sector to finalise changes to strengthen the windfall tax. We want to ensure a phased and responsible transition for the North Sea.”
