UK’s top oil, gas producer asks Sunak for windfall-tax rethink

THE UK’s largest oil and gas producer wrote to Chancellor of the Exchequer Rishi Sunak asking for a rethink of his £5 billion windfall tax on the industry.

Harbour Energy Plc Chief Executive Officer Linda Cook told Sunak in the letter that the Energy Profits Levy announced last month disproportionately affects independent oil and gas companies, rather than global majors such as BP Plc and Shell Plc.

“The four largest independent UK producers, including Harbour, are forecast to deliver over 440,000 barrels of oil equivalent a day this year,” Cook wrote in the letter seen by Bloomberg News. “We should all be concerned about the disproportionate impact the EPL – as currently proposed – has on these smaller companies.”

The government announced in May that it will impose a 25% windfall tax on oil and gas companies in a bid to help Britons grappling with soaring energy prices. The levy includes an investment allowance that will enable companies to reduce their tax bills if they commit to capital expenditure in the region. The levy will be removed by 2025 or when oil and gas prices return to “historically more normal levels,” whichever comes sooner.

Harbour estimates the tax will cost the largest independent UK producers more than £2.5 billion ($3.1 billion) from 2022 to 2025, according to the letter. Cook wrote that the sunset clause should be brought forward to 2023 in order to ensure “tax relief can be confidently factored into investment decisions.”

A representative for Harbour declined to comment on the letter but said the company was “deeply concerned” by the proposed multiyear levy, which it says is greater in size and longevity than the industry expected.

“While Harbour Energy appreciates the scale of the cost-of-living crisis in the UK, the EPL will only result in less capital being available for companies to invest in the North Sea, for both oil and gas and energy-transition projects,” the spokesperson said.

The UK Treasury’s press office didn’t immediately respond to a request for comment.

Since the levy was announced, BP has said it will review the impact on its £18 billion spending plans in the UK, while Shell criticised the tax for creating “uncertainty.” The global majors have seen less of an impact than the more geographically focused North Sea firms. Harbour’s shares have dropped 18% since the announcement, while peers such as Enquest Plc and Serica Energy Plc have also seen their valuations reduced.

While BP and Shell posted multibillion-dollar profits in the first quarter across their international businesses, Cook wrote that most smaller producers haven’t benefited so much from soaring energy prices because much of their production is hedged at lower levels for this year and next. The government should only implement the tax to companies that have realised windfall profits, and allow firms to offset tax losses from previous investments, she said. – Bloomberg