Analyst warns that a windfall tax hike could lead to no new investments in the North Sea

Stifel, an investment analyst group, has warned that the UK will not be risking any new investments in the North Sea oil-and-gas sector if the government tightens its windfall tax at this week’s financial event.

Chris Whitton, the Managing Director of Whitton’s latest report on oil and gas sector, predicts future investment will only be made by energy companies to invest in British waters.

Tell city ​​in the morning“High taxes and uncertainty about tax environment are what is likely to limit investment.” Companies that have other areas to invest in won’t want to risk their capital in high-tax environments.

Whitton predicted that this would result in the North Sea production declining faster and the UK becoming more dependent on imported gas.

city ​​in the morningHe believes that Chancellor Jeremy Hunt is aiming at raising the energy dividend rate from 25 percent to 35 percent and extending the tax term to 2025 to 2028.

The government is working to restore the country’s finances after the severe market fallout caused by the mini budget two months ago under former Prime Minster Liz Truss.

It is preparing to further harness record profits from the oil and gas sector, fueled by rising oil and gas profits in the wake of the Russian invasion of Ukraine, to fill a £50 billion financial black hole.

It comes as households struggle to pay their energy bills. The government protects them from the full extent wholesale price increases through an energy price guarantee, which is expected end in April.

Cornwall Insight expects the maximum price to rise to £3,702 a year in April, well above the current record averages of £2,500 a year set in the support package.

Wheaton wondered if the tax would be removed, even if it turns out that the government is overestimating commodity prices. With oil and gas dropping amid warmer weather, and lower demand in recent days, Wheaton was skeptical.

“It is clear to us that even if prices fall further, the windfall tax will not be eliminated – this is a policy, not a policy,” he said.

Wheaton believes that, in addition to the tax rates and the duration, the investment allowance will be decreased, not increased, in line with a longer-tax.

It currently offers oil and gas operators in North Sea oil and natural gas areas 80 percent investment relief. This saves 91 pence per pound, which allows for the development of new local projects.

city ​​in the morningOpen Last weekend the big energy companies were putting pressure on the governmentLabor is pushing for its total elimination.

Whitton argued instead that the government should concentrate on reforming the balance between investment dilution and reducing it or eliminating.

He said that the tax exemption for investment increases does no distinguish between oil and gas, and the government treats every production the same, despite the UK’s dependence upon oil imports more than on gas imports.

The UK produces approximately 45 percent of its gas domestically, and depends on Norway for 38 percent of its gas needs.

It produces approximately 70% of its oil needs. This makes it less important to the security and availability of oil supplies in the UK.

Taxes on independent companies to be a problem

Stifel claims that a windfall tax could be imposed on independent companies in a manner that is not comparable to energy giants.

This is due to the fact that these producers lack diversity in projects when compared to companies with a large international footprint.

For example, Harbor and Serica will take a greater market value hit from a windfall tax hike than BP, Shell and Total Energies.

Serica will likely see a 20% increase in its market value compared to Shell’s 1%.

The UK’s Marine Energy Authority warns, “If the UK does not invest in new projects, it may depend on outside suppliers for 70 percent of its oil and 88% of its gas” – threatening its energy independence as its emissions rise. .

The Climate Change Committee is an independent advisory group based out of Westminster. It predicts that between now 2050 and 2050, half of the UK’s energy needs will still be met with oil and gas and up to 64% of UK energy needs between 2022-2037.

OEUK has posted a recent update His economic report on the sectorThis revealed that five exploratory wells were drilled last year.

This was the lowest total for the North Sea sector since it was opened to development almost 60 years ago.

The UK is currently seeking an enormous LNG deal with America as part of the Future Energy Security Partnership. This would provide 10 billion cubic metres of gas.

For context, the whole of the European Union received a pledge of 15 billion cubic metres from the US this spring.

National Grid has warned of power disruptions as a possible worst-case scenario for this year. Pressure has been increasing in Downing Street following talks with Equinor, a Norwegian energy giant, over a potential 20 year gas deal. The Treasury has remained mum on the asking price.

Whitton said that domestic power generation should be prioritized as the UK aims to achieve its net zero targets. He also suggested that the UK establish a baseline oil and gas supply to meet its energy needs in the future.

He said, “The transition to renewables has to happen to save the planet. The way to reduce the cost of this transition is to ensure that there is a steady decline in hydrocarbon use and therefore production, but this scenario needs some investment in hydrocarbons to be maintained to ensure a smooth and equitable transition between The energy system we have now and the one we should have in 25-30 years.”