UK oil and gas producers on Thursday warned Rishi Sunak, the chancellor, that his new windfall tax on their profits could force the cancellation of projects as well as prompt investors to deploy their capital elsewhere.
At a meeting with Sunak in Aberdeen, about 20 executives from companies with UK North Sea operations — including Equinor, Harbour Energy, Ithaca Energy and Shell — highlighted negative consequences from the chancellor’s 25 per cent “energy profits levy”.
The windfall tax, unveiled by Sunak in May, is meant to partly fund a £15bn support package for UK households struggling with soaring energy bills.
Simon Roddy, senior vice-president for Shell’s UK upstream oil and gas business, told Sunak the levy sent a “negative signal” that was undermining investment in British waters, according to people at the meeting. It raises the headline tax rate paid by North Sea oil and gas producers to 65 per cent.
An executive from Norwegian state-backed energy company Equinor suggested to Sunak it was questioning whether the UK was a sensible place to invest, said several people at the meeting.
Equinor is leading on one of the most eagerly anticipated investments in the UK North Sea, the £4.5bn Rosebank oil and gasfield 130km north-west of the Shetland islands. Equinor said later it was committed to delivering Rosebank and planned to take a final investment decision in the spring of 2023.
An executive from London-listed Serica Energy told Sunak the windfall tax would disproportionately harm smaller oil and gas producers compared to their larger rivals, which have big global portfolios of assets.
Executives asked for several key commitments from Sunak, including a review of the windfall tax every six months. The levy has a so-called sunset clause that would remove it at the end of 2025.
The industry also wants greater clarity on what the trigger might be for the removal of the windfall tax.
When Sunak announced the energy profits levy, the Treasury described it as “temporary” and said it would “be phased out when oil and gas prices return to historically more normal levels”.
This month he indicated that a retreat in prices to a range of $60-$70 a barrel may be the trigger for the levy’s repeal. Brent crude was trading at $111 a barrel on Thursday.
Executives would also like carbon capture and storage projects to be eligible for a new investment allowance that Sunak announced alongside the levy. The allowance is meant to provide incentives for companies to press ahead with schemes to boost UK oil and gas production.
But one executive at the meeting with Sunak in Aberdeen said the chancellor “was lacking in answers to the main questions the industry had”.
Another person with knowledge of the meeting with the chancellor said: “He found himself on the receiving end of some rather robust feedback.
“The relationship between the Treasury and the oil and gas industry might be characterised as several layers of frost.”
Deirdre Michie, chief executive of the North Sea trade body Offshore Energies UK, described the meeting with Sunak as “candid” and warned the windfall tax would undermine attempts to attract investment to Britain.
Shell, Serica Energy and Harbour Energy declined to comment.
A government spokesperson said its energy security strategy had set out how “North Sea oil and gas are going to be crucial to the UK’s domestic energy supply and security for the foreseeable future — so it is right we continue to encourage investment there”.
The spokesperson added that the levy’s investment allowance “means businesses will overall get a 91p tax saving for every £1 they invest — this nearly doubles the tax relief available”.