Oil firms failed to capitalise on investment perks under windfall tax, Orcadian says
The UK’s oil and gas industry should have taken the chance to invest in new projects instead of fighting the windfall tax, the boss of a North Sea oil and gas producer has said.
Steve Brown, chief executive of Orcadian Energy, told City PM that the Energy Profits Levy (EPL) created a “big incentive to invest” with the 91 per cent tax relief for fossil fuel producers prepared to develop new projects in the North Sea.
This includes Orcadian’s proposed Pilot development in the central North Sea, which is projected to produce up to 79m barrels of oil over its lifetime.
But the company is still looking for an investor to back the project – despite the investment relief in the windfall tax.
“My hope was that I would see lots of these companies which have big EPL bills become very keen to get involved in new projects. They would look at our project, see the fantastic environmental performance of the project, and want to jump in. Instead, the industry was very upset. They really focused on trying to push back on the EPL rather than take advantage of the opportunities,” Brown said.
The windfall tax was introduced last May by then chancellor Rishi Sunak, who unveiled a further 25 per cent tax on the profits of oil and gas companies on top of the 40 per cent special corporation tax rate they currently pay.
This was then hiked under current chancellor Jeremy Hunt to 35 per cent, with the duration expanded from three to six years.
They really focused on trying to push back on the [Energy Profits Levy] rather than take advantage of the opportunities.
Steve Brown, chief executive, Orcadian Energy
Brown argued this was a step too far, however, because while the hiked windfall tax brings rates nearly in line with Norway’s, Norwegian oil and gas fields are at an earlier stage of development compared to the UK’s continental shelf.
“Costs are higher in our basin. Most projects are smaller. You need to find ways to really incentivise that tax for investment decisions. People have lost a bit of confidence that the EPL will actually work the way it says it will on the tin,” he said.
Brown also warned that a future Labour government would likely hurt the sector – which wanted to beyond imposing a windfall tax.
The centre-left party is seeking to scrap the levy and backdate the windfall tax to an earlier date, with opposition leader Keir Starmer pledging no new oil and gas fields under a Labour government.
Brown considered Labour’s approach to be a mistake, as he argued new developments were both more environmentally friendly than ongoing sites in the North Sea and essential for supply security.
“Every politician should be supporting new oil and gas. I don’t care if it’s because they want energy security. I don’t care if it’s because they want jobs. I don’t care if it’s because they want reduced emissions, because new oil and gas can do all three,” Brown said.
He concluded that without new projects and the newly-hiked windfall tax, the UK would become increasingly reliant on carbon intensive imports such as liquefied natural gas from overseas, alongside production from the remaining ageing fields on the UK’s continental shelf.
Every politician should be supporting new oil and gas. I don’t care if it’s because they want energy security. I don’t care if it’s because they want jobs. I don’t care if it’s because they want reduced emissions, because new oil and gas can do all three.
Steve Brown, chief executive, Orcadian Energy