British oil and gas producers warned Chancellor Rishi Sunak on Thursday that his new windfall tax on their profits could force the cancellation of projects and prompt investors to deploy capital elsewhere.
At a meeting with Sunak in Aberdeen, around 20 executives from companies with UK North Sea operations including Equinor, Harbor Energy, Ithaca Energy and Shell highlighted the chancellor’s 25% negative impact “Energy Profit Tax”.
The windfall, unveiled by Sunak in May, aims to provide a £15bn support package for British households. Battling soaring energy bills.
Simon Roddy, Shell’s senior vice president of upstream oil and gas in the UK, told Sunak that the levy sends a “negative signal” that is undermining investment in UK waters, according to participants. It raised the overall tax rate paid by North Sea oil and gas producers to 65%.
An executive at Norway’s state-backed energy company Equinor told Sunak it was questioning whether Britain was a wise place to invest, several people at the meeting said.
Equinor is leading one of the most anticipated investments in the UK North Sea, the £4.5 billion Rosebank oil and gas field, 130km northwest of the Shetland Islands. Equinor later said it was committed to delivering Rosebank and planned to make a final investment decision in spring 2023.
A windfall tax would disproportionately hurt smaller oil and gas producers compared to larger rivals with large global asset portfolios, an executive at London-listed Serica Energy told Sunak.
Executives asked Sunak to make several key commitments, including reviewing the windfall every six months. The tax has a so-called sunset clause and will be eliminated by the end of 2025.
The industry also wants a clearer picture of the triggers for the removal of the windfall tax.
When Sunak announced the energy profit tax, the finance ministry described it as “temporary” and said it “will be phased out when oil and gas prices return to more normal levels in history”.
This month, he said that a pullback in oil prices to the $60-$70-a-barrel range could be a trigger for the removal of the levy. Brent crude traded at $111 a barrel on Thursday.
Executives also want carbon capture and storage projects to qualify for a new investment allowance that Sunak announced alongside the levy. The grant is designed to incentivise companies to push ahead with plans to boost UK oil and gas production.
But at the meeting with Sunak in Aberdeen, a senior executive said the chancellor had “lacked answers to key questions for the industry”.
Another person familiar with the meeting with the prime minister said: “He found himself getting some pretty strong feedback.
“The relationship between the Treasury and the oil and gas industry could be described as several layers of frost.”
Deirdre Michie, chief executive of North Sea trade body Offshore Energies UK, called the meeting with Sunak “frank” and warned that a windfall tax would undermine efforts to attract British investment.
Shell, Serica Energy and Harbour Energy all declined to comment.
A government spokesman said its energy security strategy had articulated that “North Sea oil and gas will be critical to the UK’s domestic energy supply and security for the foreseeable future – so it is right that we continue to encourage investment there”.
The taxable investment allowance “means that businesses will receive an overall tax relief of 91p for every £1 invested – almost double the tax relief available”, the spokesman added.