The British government will increase a windfall tax on North Sea oil and gas producers to 38% from 35% and extend the levy by one year, finance minister Rachel Reeves announced on Wednesday.
Presenting the first budget under the new Labour government, Reeves said the increase to the windfall tax, known as the Energy Profits Levy, will take effect on Nov. 1.
It brings the headline tax rate on oil and gas activities to 78%, among the highest in the world. Its duration will be extended by a year to March 2030.
Shares of North Sea producers rose following the announcement, which Jefferies analysts said was "a very positive outcome versus most expectations".
Top North Sea producer Harbour Energy's shares were up 3.5% by 1610 GMT, while smaller producer Serica Energy's shares were up nearly 13%.
The changes also include scrapping the levy's 29% investment allowance, which lets companies offset tax from capital that is re-invested. Capital allowances on the other taxes will remain unchanged, Reeves said.
The Labour government, elected in July, wants to use the revenue from oil and gas to raise funds for renewable energy projects.
North Sea producers have warned that the higher tax rate could lead to a sharp drop in investments and are exiting from the ageing basin ahead of the new tax increases.
Harbour Energy wants to sell stakes in oilfields and is reviving plans for a U.S. listing, sources told Reuters last week, while U.S. oil major Exxon Mobil completed its exit from the basin in July.
Smaller operators, including Serica, have said they are seeking opportunities overseas.
"Further engagement will be required to ensure a fair fiscal regime for the longer term in support of homegrown oil and gas in a very mature and declining North Sea," said Serica Chair David Latin.
Jefferies said however that the budget announcement did not provide clarity on what happens after 2030, which is a hurdle for the approval of new oil and gas projects.
A 25% windfall tax was first introduced by the previous Conservative government in May 2022 in the wake of soaring energy prices following Russia's invasion of Ukraine. The tax was subsequently increased to 35% in November 2022, and extended by one year in March 2024.
(Reuters, October 30, 2024)
