By Nicholas Earl
The biggest oil and gas producer in the North Sea has warned it will have to reconsider investments in the UK, if the windfall tax is further expanded – reflecting a growing industry fight back against the levy.
Harbour Energy, in its latest trading update, argued speculation about further fiscal changes had created uncertainty for the company that could influence its business decisions.
Chief executive Linda Z Cook explained that evaluating “expected returns from long term investments” has now become more difficult and revealed that “investors are advocating for geographic diversification.”
The independent trader acknowledged the significant challenge in the UK to both support households and businesses amid the energy crisis.
However, it urged Downing Street to “carefully consider the consequences of any increase in or extension of the levy.”
Cook said: “At a time when oil and gas producers are being asked to invest more to help ensure the UK’s energy security and are considering longer term, material investments in carbon capture storage, additional taxes would run the risk of undermining our ability to do either.”
The Energy Profits Levy was rolled out in May, as a further 25 per cent tax on the profits of North Sea oil and gas producers, alongside the 40 per cent special rate of corporation they already pay.
It was introduced to cash in on revenues from energy giants unveiling bumper profits, driven by soaring oil and gas prices following Russia’s invasion of Ukraine.
Funds have so far been put towards support packages for households and businesses grappling with record energy bills.
The Government is under increasing pressure to toughen up the tax to fill in a £50bn fiscal black hole, with opposition Labour calling for the 91 per cent investment relief to be scrapped and for it to be backdated to January 2022 – with the tax introduced in May.
Sector fights back against boosting windfall tax
Prime Minister Rishi Sunak and Chancellor Jeremy Hunt are considering raising the rate of the windfall tax on November 17 at the next fiscal event.
The tax could be hiked from 25 to 30 per cent, and have its duration extended from 2025 to 2028, according to multiple media reports.
Industry body Offshore Energies UK has pressed Downing Street not to expand the levy.
The group wrote a letter to Hunt earlier this week, requesting an urgent meeting – warning further changes could drive investment from the North Sea.
In a follow-up statement to the media today, Mike Tholen, OEUK’s sustainability and policy director, argued “further increases will again undermine viability of projects but also undermine investment case for the UK which will be hard to regain once lost.”
He believed this was a particularly serious issue with companies aiming to invest in oil and gas exploration, which is “critical” for both energy security and reaching net zero goals.
The offshore industry is is on course to pay at least £7.8bn for 2022/23 in corporation tax and a further £7bn in the first 12 months of the energy profit levy.
Meanwhile, in its latest note on Harbour Energy, analysts at Investec suggested growing fiscal uncertainty “highlights the need to diversify business away from the unpredictable fiscal regime.”
Harbour pays up windfall tax
In its latest update, Harbour revealed it has coughed up $400m on the windfall tax over the nine months of trading,
This indicates it did not invest in UK projects sufficiently to activate the levy relief over the trading period.
By contrast, Shell invested sufficiently in the Jackdaw, Penguin and Pierce fields to qualify for investment relief.
Harbour also recorded revenues of $4.1bn, which were tapered by its decision to sell oil and gas was significantly below market rates, due to an extensive hedging programme.
The company received an average of $80 per barrel for oil in the first nine months, compared with a market price of $105 per barrel over the same period.
Meanwhile, its gas sales delivered an average 86p a therm vs an average market price of 209p a therm.
Its production rate, of 207,000 barrels of oil equivalent per day, was an increase of 27 per cent on the corresponding prior period.
The group expected full year production to be in the upper half of 200-210,000 barrels per day guidance
Harbour is also returning hefty amounts of cash to shareholders, with $500m paid out so far this year.
This is alongside a new $100m share buyback programme.
It currently holds $1.1bn in net debt, but expects to be debt-free in 2023.
Harbour is alsoengaged extensively in carbon capture and storage, with company Viking CCS.
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