Windfall tax is bad for business

As Harbour Energy profits are ‘all but wiped out’, oil giants warn of exodus from North Sea

SENIOR figures in the UK oil and gas industry last night warned the Government’s punishing windfall taxes are ‘bad for business’.

Trade association offshore Energies UK (oEUK) said several companies have raised ‘concerns about the future of the north sea and the risk involved in investing there’.

The comments came after Harbour Energy, the largest oil producer in the north sea, said its profits last year were ‘all but wiped out’ by the windfall tax.

It said it was now cutting jobs and investment in the north sea and looking overseas for growth.

OEUK said Harbour was not alone in raising concerns.

It said French giant TotalEnergies has slashed its north sea investment plans by £100m for 2023 alone, while Londonlisted group EnQuest has decided to halt drilling activity at its Kraken oilfield as a result of the levy.

The international Association of Drilling Contractors also warned the Government last month that the north sea faced an ‘ exodus’ of skills and equipment as the industry sought better opportunities elsewhere.

Mike Tholen, sustainability director at OEUK, said the announcements were ‘ a stark reminder that the windfall tax and the uncertainty it brings is ultimately bad for business’.

He added the industry needed ‘stable regulation, predictable competitive taxes and, above all, longterm planning and leadership from politicians of all parties’.

In a bleak update to the stock market, Harbour Energy reported an after-tax profit of just £6.7m for 2022, down from £85m in 2021, due to a £1.3bn charge linked to the windfall tax.

This was despite the company’s profit before tax, before taking account of the cost of the levy, ballooning to nearly £2.1bn in 2022 from £264m the previous year as it cashed in on energy prices that surged following the outbreak of war in Ukraine.

Harbour’s shares inched up 0.4pc, or 1.1p, to 288p. Boss Linda Cook said the Government’s windfall tax, which imposes a 75pc effective tax rate on profits made from the north sea, has ‘ disproportionately impacted’ Britain-focused oil and gas firms ‘ critical for domestic energy security’.

She said the windfall tax ‘has all but wiped out our profit for the year’, adding: ‘This has driven us to reduce our UK investment and staffing levels.

‘Given the fiscal instability and outlook for investment in the country, it has also reinforced our strategic goal to grow and diversify internationally.’

Russ Mould, investment director at AJ Bell, said: ‘Given businesses like Harbour Energy have the option of investing elsewhere, there is a risk of the UK’s energy security being undermined by understandable moves to tax profit which was indisputably boosted by the knock- on effects of the invasion of Ukraine.’

‘Risk involved in investing there’