North Sea producers will meet UK ministers today to urge the scrapping of the government's windfall tax on oil and gas profits if prices decline.
Leading companies in the UK's offshore sector will issue a "stark warning" that the Energy Profits Levy (EPL), which was increased last month, risks causing a rapid reduction in investment and jobs, industry lobby group Offshore Energy UK (OEUK) said. Separately, several oil and gas companies with sizeable UK production have told Argus that they want to see a price floor mechanism added to the EPL.
The UK finance ministry announced the windfall tax in May. It was originally set at 25pc, effectively taxing profits made from oil and gas production in the UK North Sea at 65pc. Last month the levy's rate was increased to 35pc and the industry was told it would last until 2028, two years longer than initially planned.
Today's meeting in Edinburgh will see the reinstatement of the Fiscal Forum — a group that brings together the UK finance ministry, oil and gas producers and OEUK. Senior officials from the Department of Business, Energy and Industrial Strategy (Beis) are also expected to attend. The forum's aim is to find ways to support the UK's energy security and economy by maximising the country's offshore oil and gas production.
At the meeting, OEUK intends to argue that additional taxes should only apply to windfall profits — so that if prices and profits fall back to "normal levels", the tax should be scrapped. OEUK chief executive Deirdre Michie will also ask for "a lasting, predictable tax regime that supports consumers and industry" and for the government to engage with the industry in the long term, "including building a lasting consensus with other political parties and stakeholders".
In a statement issued by OEUK, Michie said: "Our message to [UK finance minister] Jeremy Hunt is that the windfall tax has made it far riskier — to the point where energy companies are deciding to invest overseas rather than here. So, we are asking for his explicit support so that the offshore industry can provide energy for consumers now as well as building the low-carbon energy systems of the future."
Meanwhile, several companies have told Argus in recent weeks that they want to see a price floor mechanism attached to the EPL. TotalEnergies said it is now evaluating the impact of the increase in the levy on its current and planned projects in the UK. "We note that without a price floor to the Energy Profits Levy, the current regime will affect short-cycle investments, in particular infill wells," the company's UK country chair Jean-Luc Guiziou said.
Independent Ithaca Energy, which has all of its 70,000 b/d of oil equivalent (boe/d) of production located in the UK North Sea, said it is actively engaging with the government about the windfall tax. And fellow independent operator Enquest said it wants to see the implementation of "a floor price at which the levy falls away".
None of the North Sea operators calling for a price floor has suggested what level it should be set at.
