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Some UK oil producers have suggested that the windfall tax announced yesterday by Chancellor Rishi Sunak could lead to a review of their investment plans for the North Sea.
The Financial Times reports that the industry had expected a one-off hit from the tax but instead had been surprised with the Exchequer’s plans to keep the levy in place until 2025. In addition, it would bypass certain tax relief measures in place currently.
The latter part will also affect the investment plans of oil companies, according to industry experts.
“Naturally we will now need to look at the impact of both the new levy and the tax relief on our North Sea investment plans,” said BP, as quoted by the FT.
The tax will “drive away investors and so reduce UK energy production”, said the chief executive of Offshore Energies UK, Deirdre Michie, adding, “Right now, the key task is to prevent a flood of investment formerly earmarked for UK energy projects now being diverted to Norway, Saudi Arabia, and Qatar.”
Chancellor Rishi Sunak announced on Thursday a new temporary 25-percent Energy Profits Levy for oil and gas companies, reflecting their extraordinary profits as oil and gas prices surged.
The tax will immediately boost the total tax rate paid by North Sea operators to 65 percent, raising some $6.33 billion (5 billion pounds), the FT noted in its report.
The move has long been opposed by the industry, which argues that a windfall tax would add uncertainty to the UK tax regime and will hit new investments in the UK North Sea at a time when the country grapples with reducing reliance on foreign imports of oil and gas.
Despite numerous calls and letters from the offshore operators and offshore services firms not to impose a windfall levy, the UK government proceeded with it and said that the new levy “will include a generous new 80% investment allowance.”
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.