UK North Sea Tax Changes Mean $12 Billion Revenue Drop, Industry Body Says

An industry group warned on Monday that the British government's plans to raise a windfall-tax on North Sea oil producers will result in a drop of nearly 16 billion pounds in state revenue and accelerate a fall in production.

The Labour government elected in July has stated that the changes will assist in achieving a ramp up in renewable energy and a shift away from oil and natural gas in order to reduce carbon emission and help curb global climate change.

Offshore Energies UK, an industry group, predicted that the changes will reduce tax revenues by 12 billion pounds from 2025 to 2029 when compared with the current tax regime.

OEUK stated that capital investment in the sector is expected to drop to 2.3 billion pounds over the next five years from 14 billion pounds.

In a press release, OEUK CEO David Whitehouse stated that the proposed tax changes would "trigger an accelerated decline in domestic (oil-and-gas) production and a corresponding decrease in taxes paid, employment supported, and wider value generated."

NEO Energy, a North Sea-focused company, said that the uncertainty surrounding fiscal and regulatory matters would affect its investment plans.

NEO holds half of the Buchan Horst project in the UK North Sea, with Serica Energy owning 30%. Jersey Oil & Gas has 20%.

The mature North Sea basin's production has fallen from a high of 4.4 millions barrels of oil-equivalent per day (boed), at the beginning of the millennium, to around 1.3million boed.

North Sea Transition Authority, a regulator, has predicted that it will drop to less than 200,000 boed in 2050.

The British Labour Government announced shortly after their election that they would raise the Energy Profits Levy from 35% to 38% starting November 1, making the headline tax rate on oil and natural gas activities 78%. This is among the highest rates in the world. The duration of the tax was also increased by one year, to March 2020.

Changes will include the scrapping of 29% investment allowance that allows companies to offset tax on capital that is reinvested.

A Treasury spokesperson stated: "We remain committed to a constructive dialogue to finalise the changes to strengthen windfall tax and ensure a phased, responsible transition in the North Sea."

(source: Reuters)