US energy giant Chevron has become the latest oil and gas company to pull out of North Sea operations following UK Chancellor Jeremy Hunt's rejection of pleas to pause the "windfall" tax on energy companies. The move comes after some 55 years of Chevron working in the area.
The company said it had taken the decision after looking closely at its operations around the world, to see which of its businesses and assets remained competitive and in a strong position to take on future challenges. Chevron denied that the decision had anything to do with the current UK tax laws.
No signs of Chancellor relenting over pleas to pause windfall tax
Chevron said it will be divesting of assets such as the Ninian Pipeline, the Sullom Voe Terminal and the Shetland Islands Regional Gas Export pipeline.
One of the main support measures requested had been for a pause in the recently implemented windfall levy or tax, which has left oil and gas companies seeing their profits taxed by as much as 75%.
Some companies, such as EnQuest, have been taxed as high as 113%, due to the tax being ring-fenced and only concerning oil and gas extraction profits, and not taking into account other costs in various other departments.
EnQuest said in a report: "As expected, the windfall levy has impacted access to capital across the sector, with the most significant on EnQuest being the reduced borrowing base within the group's reserve bank lending facility.
"Clearly, a volatile fiscal regime imposes significant challenges on any business and the extension of the levy to 2029 announced in the spring Budget represented the fourth amendment to UK sector taxation in the last two years. "
How could the windfall tax impact UK oil or gas supply?
Jeremy Hunt has again turned down requests for a pause to the windfall levy despite being warned repeatedly by industry experts and leaders that this would drastically reduce investment and development in UK's oil and gas sector, especially in the North Sea.
Some estimates suggest oil and gas supply from the UK could potentially fall by around 50% by the end of the decade. While this might be seen as a positive move towards the phasing out of fossil fuels and the green transition, critics argue this could be happening too quickly for the UK to have implemented sufficient renewable energy infrastructure by then.
As such, it might potentially lead to a transitiional energy crisis while the country scrambles for other reliable energy sources.
There is further speculation that the windfall tax could even be raised another 3% while, at the same time, investment grants might be cut.
The British government insists that it still supporting the oil and gas sector, despite the damages of the windfall tax.
A UK government spokesman said, according to The Telegraph: "No one is backing the oil and gas industry more than the government. Our annual licensing rounds are supporting around 200,000 jobs, giving them certainty to invest and unblocking billions in tax for our own transition to clean energy.
"The temporary windfall tax on oil and gas firms actively encourages investment to create jobs and grow the economy- the more investment they make, the less tax they will pay."
Other energy companies such as Shell, Harbour Energy and BP have also recently reduced their stake or pulled out of North Sea drilling, because of the same tax laws.
