Apache Corporation is halting drilling in the UK North Sea, cutting jobs in Britain, after the latest change to the UK Energy Profits Levy, commonly referred to as the windfall tax.
The U.S.-based corporation, which is one of the top ten producers of oil and gas in the UK North Sea, has said that the windfall tax and the challenging regulatory environment are making its UK operations less competitive.
Apache has also confirmed the suspension of drilling activities will lead to job losses in its UK division.
"We are reassessing our investments, as we consider the challenging UK macro environment with its increasingly costly and burdensome tax and regulatory regime," a spokeswoman for Apache told media.
"Given the business climate for the oil and gas industry in the UK, these assets have become less competitive in comparison to the rest of our portfolio," she said.
Last week, the UK government put a price floor to the windfall tax, but this price floor will only trigger a return to a 40% marginal tax rate on North Sea oil and gas production, compared to the current tax rate of 75%, if both average oil and gas prices fall to, or below, $71.40 per barrel for oil and £0.54 per therm for gas, for two consecutive quarters.
According to Ryan Crighton, policy director at Aberdeen & Grampian Chamber of Commerce, UK gas prices are unlikely to drop to those levels,
"So, basically, it will never be triggered."
"The Chancellor needs to work with the industry to get this right, because billions of pounds worth of investment and thousands of new jobs could be created in the North Sea in the right conditions," Crighton said.
"The alternative is a levy which risks accelerating the decline of our oil and gas sector at a pace which jeopardises the skills and investment required to deliver the UK's net zero plans."
After the UK raised the windfall tax to 35% at the end of last year, Harbour Energy, the biggest oil and gas producer in the UK North Sea, backed out of the latest licensing round aimed at awarding more than 100 new licenses. Shell has said it would be re-evaluating each project comprising its $30.5 billion (25 billion pounds) planned investment in the UK energy system, and TotalEnergies has said it would slash its investment in the UK by 25%.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More