The North Sea operators who are warning they will leave the UK

By Pune Media On Oct 28, 2024 9

The UK oil and gas sector has shared its opposition to the UK’s fiscal regime with some firms suggesting they will up sticks and move to more supportive climates.

This week the UK will find out Labour’s financial plan for the country as it delivers the first budget of Keir Starmer’s premiership.

One area of particular interest for oil and gas firms across the country is the energy profits levy, (EPL) a policy that is set to bring the headline rate of tax paid by operators to 78%.

The investment incentives that are currently in place are also set to go. However, the industry is still unsure of how much the government will reduce capital allowances that fall under the controversial fiscal policy.

Investment woes as operator goes

The UK’s largest producer of oil and gas, Harbour Energy (LON:HBR), was rumoured to be looking to sell stakes in its North Sea assets including the Armada, Everest, Lomond, Catcher and Tolmount fields. Aberdeen South MP Stephen Flynn called the speculation a “stark warning for the Labour Government”.

The firm’s CEO Linda Cook has been vocal in the past regarding her objections to the EPL. Last year saw the operator announce the $11 billion (£8.5bn) acquisition of Germany’s Wintershall Dea, a major move that diversified Harbour’s portfolio as it gained stakes in fields across Europe.

Businesses like the London-listed Serica Energy (LON:SQZ) have previously put stock in the idea of overseas merger and acquisition (M&A) deals.

Harbour isn’t the only firm to oppose the windfall tax, last week Deltic Energy (AIM:DELT) described the UK as “not the ideal place” to invest in new oil and gas following previous rallying cries against the legislation.

Harbour Energy offices at Hill of Rubislaw, Aberdeen. Wullie Marr

At this year’s ONS conference, Philippe François Mathieu, vice president for exploration and production international at Equinor (OSL:EQNR), told Energy Voice that the firm has seen more stability in “all of the jurisdictions where we operate” in recent years.

UK supermajor BP (LON:BP) has also voiced objections in recent months as its North Sea boss Doris Reiter warned the story of the North Sea could end on a “cliffhanger”.

Last month she said: “At the end of the day, BP’s North Sea business needs to stand on its own two feet in our global portfolio.

“But in a scenario where my business becomes uncompetitive against investment options elsewhere in the world, and this is likely true for the rest of the industry – our basin will lose out.”

© Supplied by Kath Flannery/DC Tho
Doris Reiter, Senior Vice President of BP North Sea, in conversation with Energy Voice.

CEO of French supermajor TotalEnergies (PAR:TTE), Patrick Pouyanne, shared similar beliefs this month as he warned that his firm will reduce capital expenditure and restructure operations in the UK off the back of the foreshadowed tax changes.

The industry is already seeing project timelines skew as uncertainty hits operators. NEO Energy’s joint venture project with Jersey Oil and Gas (AIM:JOG) and Serica Energy, Buchan, has seen multiple delays due to recent political and fiscal uncertainty within the country.

Energy Voice spoke to the North Sea’s oil and gas operators to discuss their future investment in the UK.

Deltic Energy investors won’t tolerate investment in UK
Serica Energy needs clarity on licencing as well as tax
Government ‘unresponsive’ to Viaro Energy engagement

Deltic Energy

Deltic Energy has blasted the Labour government’s policies warning its investors are now shunning the UK.

In a recent update, the firm warned that the UK is “not the ideal place” to invest in new oil and gas.

When questioned on the state of oil and gas in the UK, a company spokesperson told Energy Voice: “The UK Prime Minister has stated that we will need oil and gas to 2050 and beyond.

“His energy ministers, however, are shutting down access to North Sea licences. This can only mean they choose to import – with higher emissions – the resources we need from regions such as the Middle East, USA and Peru.

“Naturally, that means companies will look overseas for new production and that is what Deltic is doing while preserving its existing UK portfolio like Selene where drilling continues.”

Due to this, the firm is looking to divert investment overseas to appease shareholders.

The Deltic spokesperson added: “Our investors read these signals from government and have sent us a clear message that further investment into new UK exploration opportunities will not be supported, and we should focus on extracting value from our UK portfolio, including Selene should drilling prove a commercial discovery, and re-investing that in jurisdictions that have demonstrated longer term fiscal stability.”

Serica Energy

Delitc Energy has not been alone in sharing its objections to the state of UK oil and gas political signalling and fiscal policy.

Serica Energy’s senior management has also been consistently clear in its objections to Labour’s punitive tax regime.

The firm told Energy Voice: “Oil and gas prices have long returned to normal levels but the continuing very high level of tax, combined with uncertainty about the long-term fiscal regime, is deterring investment in both maintaining production from existing fields and developing new ones.

“This is accelerating the decline in UK production, widening the deficit compared to domestic demand and increasing imports.”

The firm added that “political signals across the board are causing companies like us to look overseas”, a concern that it claimed will drive more than just operators to other parts of the globe.

“The UK’s world-class supply chain will follow, with all the consequences that will have for jobs, especially in parts of Scotland and north-east England,” the company’s spokesperson continued.

Operators’ concerns are not just limited to changes in financial rulings in the UK. Serica also has an eye on the future of licencing within the country.

During this year’s general election, Keir Starmer’s party manifesto outlined that it would not issue exploration licences for “new fields”.

However, clarity has yet to materialise, leading to yet more uncertainty on the part of oil and gas firms within the country.

A company spokesperson added: “This can’t be good for UK jobs, economic growth or tax revenues over the life of this parliament.

“We and other companies are ready to invest in the UK if the conditions allow a fair return to shareholders but at the moment the government risks heading into a ‘lose-lose’ situation.”

The UK’s largest producer of oil and gas, Harbour Energy, was vocal about the implications of taxation tinkering ahead of its acquisition of Wintershall Dea, a move that diversified the firm’s portfolio overseas.

M&A in foreign markets, is not off the table for other firms as well as they feel the impacts of the UK’s turbulent market.

“We have said before that Serica is looking at opportunities overseas,” Serica continued.

“We won’t move out of the UK North Sea where our portfolio of producing fields is financially robust but that shouldn’t be seen as a vote of confidence in government policies.”

Viaro Energy

Viaro Energy CEO Francesco Mazzagatti harkened back to Harbour Energy’s recent market speculation, claiming such a move will impact on joint venture (JV) projects in the county’s waters.

Mazzagatti remarked: “The UK’s fiscal policy continues to have a negative impact on domestic production, as evident from the recent announcement that Harbour is now also looking to divest from projects on the UK continental shelf.”

“As was the case when the original windfall tax was implemented, such a move by one of the supermajors is likely to introduce further instability to the ongoing JV projects in the basin.”

He said that creating such instability “might be the current government’s plan anyway,” however, the Viaro boss questioned how Starmer’s government plans to deal with the “fallout”.

Mazzagatti added: “If the tax is increased in this way, it will inevitably lead to earlier COP [cessation of production] dates and a reduction in investments, which will in turn lead to missing income from oil and gas taxes amounting to hundreds of millions of pounds in the upcoming years.

He pointed to the sector’s engagement with the government around the role of oil and gas in the energy transition.

“Numerous possible positive solutions have already been identified, but the current government has not been responsive to our attempts to engage with them, which is concerning considering that major decisions affecting the sector can only be beneficial for all if they are shaped by the inputs and experiences of its participants.”

© Supplied by Viaro Energy
Viaro Energy holds non-operated stakes in several UK assets, including the Shell Nelson field.

The head of the North Sea operator argued that this uncertainty and lack of dialogue is “not conducive” to Labour’s plans to create a stable business tax regime for investors.

He concluded: “In its own words, Labour pledged to ‘stop the chaos, and turn the page with a strategic approach that gives certainty and allows long-term planning.’

“In addition, the reasoning that Norway also has a 78% tax rate does not apply considering the announcement to reduce investment allowance, as the Norwegian system is calculated specific to each entity and its scope of activities in the areas that are relevant for economic growth and the energy transition, which allows for an overall friendly investment environment while not detracting from the country’s net-zero goals.”

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