Windfall tax is bad for business: As Harbor Energy profits ‘almost wiped out’, oil giants warn of North Sea exodus
Last night senior figures in Britain’s oil and gas industry warned that government-imposed windfall taxes were ‘bad for business’.
The trade association Offshore Energies UK (OEUK) said several companies had expressed “concerns about the future of the North Sea and the risks of investing there”.
The comments came after Harbor Energy, the North Sea’s biggest oil producer, said its profits last year were “almost wiped out” by the windfall tax.
Warning: The trade association Offshore Energies UK said several companies had expressed “concerns about the future of the North Sea and the risks of investing in this region”.
He said he was now cutting jobs and investment in the North Sea and looking for growth overseas.
OEUK said Harbor was not the only one raising concerns.
He said French giant TotalEnergies had cut its North Sea investment plans by £100million in 2023 alone, while London-listed group EnQuest had decided to halt drilling activities on its Kraken oil field as a result of the tax.
The International Association of Drilling Contractors also warned the government last month that the North Sea was facing an “exodus” of skills and equipment as the industry sought better opportunities elsewhere.
Mike Tholen, director of sustainability 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 that the industry needed “stable regulation, predictable competitive taxes and, above all, long-term planning and leadership from politicians of all parties.”
In a grim stock market update, Harbor Energy reported an after-tax profit of just £6.7m for 2022, down from £85m in 2021, due to a £1.3bn charge of pounds linked to the exceptional impact tax.
And this despite the company’s pre-tax profit, before taking into account the cost of the tax, which soared to almost £2.1bn in 2022 from £264m the year before, as it benefited from energy prices which jumped after the outbreak of war in Ukraine.
Harbor shares rose 0.4%, or 1.1p, to 288p. Boss Linda Cook said the government’s windfall tax, which imposes an effective tax rate of 75% on profits made in the North Sea, has ‘disproportionately affected’ Britain’s ‘essential’ oil and gas businesses for national energy security”.
She said the windfall tax ‘virtually wiped out our profits for the year’, adding: ‘It has caused us to reduce our investment and headcount in the UK’.
“Given the fiscal instability and investment prospects in the country, it has also reinforced our strategic objective of growth and international diversification.”
Russ Mould, investment director at AJ Bell, said: “Given that companies like Harbor Energy have the option of investing elsewhere, there is a risk that the UK’s energy security will be compromised by understandable moves to profit tax, which were unquestionably boosted by the ripple effects of the invasion of Ukraine.