Harbour Energy, the largest oil and fuel producer within the UK North Sea, has warned the federal government that it could be pressured to rethink investments within the nation if the windfall tax on income is elevated.
Linda Cook, chief government on the non-public equity-backed producer that has purchased a considerable variety of fields within the North Sea over the previous 5 years, cautioned that traders have been pushing the corporate to diversify into different geographies due to the so-called vitality income levy.
“While we fully recognise the significant challenge in the UK to put public finances on a sustainable footing, we urge the government to carefully consider the consequences of any increase in, or extension of, the EPL,” Cook mentioned in a buying and selling replace on Thursday.
“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 CCS (carbon capture and storage), additional taxes would run the risk of undermining our ability to do either.”
New prime minister Rishi Sunak and chancellor Jeremy Hunt are taking a look at elevating the speed of the windfall tax, launched in May, from 25 per cent to 30 per cent, taking the entire tax on income to 70 per cent. They are additionally contemplating extending the levy’s length from the top of 2025 to 2028, because the UK races to plug a roughly £50bn fiscal black gap that was created partially by the vitality disaster.
The windfall tax consists of, nevertheless, a “super deduction” for investments in new oil and fuel manufacturing, that rewards firms with an total 91p tax saving for each £1 they make investments. It has not but been prolonged to investments in cleaner vitality applied sciences resembling CCS.
Cook mentioned the potential for “further fiscal changes” was creating important “uncertainty” for smaller impartial oil and fuel firms resembling Harbour. The firm, which joined the FTSE in London after taking on Premier Oil final yr and shopping for a considerable portion of Shell’s North Sea belongings in 2017, has a market capitalisation of £3.8bn, in contrast with £172bn for Shell.
“Evaluating expected returns from long-term investments has become more difficult and investors are advocating for geographic diversification,” Cook mentioned.
In the primary 9 months of the yr Harbour had revenues of $4.1bn however highlighted that the quantity it obtained for its oil and fuel was considerably under market charges, due to an intensive hedging programme.
People near the corporate have argued that smaller independents have little selection however to hedge as a part of financing agreements with lenders.
Harbour obtained a mean of $80 a barrel for its oil within the first 9 months in contrast with a market worth of $105, whereas its fuel gross sales delivered a mean 86p a therm vs a mean market worth of 209p a therm.
The firm has nonetheless raised its anticipated UK tax legal responsibility to $900mn, $400mn of which is from the EPL. Harbour had forecast a tax legal responsibility of about $500mn for the yr.
Harbour can also be returning substantial quantities of money to shareholders, with $500mn paid out thus far this yr, together with a brand new $100mn share buyback programme. It expects to be debt-free in 2023. Its internet debt was $1.1bn on the finish of September.
The firm’s share worth has declined to 393p from slightly below 500p in August when fuel costs reached a report excessive, reflecting a drop in fuel costs and issues about elevated windfall taxes.