UK's Windfall Tax Hike to Trigger £12 Billion Revenue Drop and Cut Oil Output

The British government's plans to increase the windfall tax on North Sea oil and gas producers will likely result in a £12 billion revenue decline and hasten a drop in production, according to industry group Offshore Energies UK. The Labour government aims to boost renewable energy and reduce carbon emissions.

The British government’s proposal to hike the windfall tax on North Sea oil and gas producers is expected to lead to a £12 billion ($16 billion) drop in state revenue and hasten a decline in production, according to industry group Offshore Energies UK (OEUK).

Since its election in July, the Labour government has aimed to augment renewable energy and reduce dependency on oil and gas to cut carbon emissions. OEUK projects £12 billion less in tax revenue from 2025 to 2029, a significant decrease from the current regime.

Investment in the North Sea sector is anticipated to plummet to £2.3 billion from approximately £14 billion. OEUK CEO David Whitehouse stated that the proposed tax changes would accelerate the decline of domestic oil and gas production, adversely affecting tax revenues, employment, and economic value.

NEO Energy, which primarily operates in the North Sea, echoed these concerns, emphasizing that fiscal and regulatory uncertainty would hinder investment. NEO holds a 50% stake in the Buchan Horst development project, with Serica Energy and Jersey Oil & Gas holding 30% and 20%, respectively.

North Sea production has already dwindled from a peak of 4.4 million barrels of oil equivalent per day (boed) at the start of the millennium to about 1.3 million boed today. The North Sea Transition Authority (NSTA) regulator forecasts this will drop to under 200,000 boed by 2050.

The Labour government announced shortly after election that it would raise the Energy Profits Levy (EPL) to 38% from 35%, effective Nov. 1, pushing the headline tax rate on oil and gas activities to 78%, one of the world’s highest. The EPL’s duration has been extended by a year to March 2030, and the 29% investment allowance will be scrapped.

A Treasury spokesperson confirmed the government’s commitment to maintaining constructive dialogue with the oil and gas sector to finalize the windfall tax changes.

(With inputs from agencies.)