British Government's Windfall Tax Hike on North Sea Oil

The British government's plan to increase the windfall tax on North Sea oil and gas producers could result in a £12 billion drop in tax revenue and accelerate production decline, according to Offshore Energies UK. The Labour government aims to ramp up renewable energy and reduce carbon emissions with these tax changes.

The British government's plan to raise the windfall tax on North Sea oil and gas producers could cause a £12 billion ($16 billion) decrease in state revenue and hasten a reduction in output, an industry group warned on Monday.

The Labour government, which came into power in July, argues that the tax adjustments are necessary to increase renewable power and transition away from oil and gas to cut carbon emissions and curb global warming. Offshore Energies UK projected that the tax changes would cut tax revenue by £12 billion between 2025 and 2029 compared to the current tax regime.

Capital investment in the sector is expected to plummet from £14 billion to £2.3 billion over this period, according to OEUK. David Whitehouse, CEO of OEUK, stated that the proposed tax changes would lead to a faster decline in domestic oil and gas production, resulting in reduced taxes, fewer jobs, and lower economic value.

NEO Energy, focused on the North Sea, said that fiscal and regulatory uncertainty would slow investment across its portfolio. NEO co-owns the Buchan Horst development project with Serica Energy and Jersey Oil & Gas, which hold 30% and 20% stakes, respectively.

Production in the mature North Sea basin has dropped from a peak of 4.4 million barrels of oil equivalent per day (boed) at the start of the millennium to around 1.3 million boed today. The North Sea Transition Authority (NSTA) predicts it will fall to less than 200,000 boed by 2050.

Shortly after its election, the Labour government announced plans to increase the Energy Profits Levy (EPL) to 38% from 35% starting from Nov. 1, raising the tax rate on oil and gas activities to 78%, among the world's highest. The levy duration was extended to March 2030, and the 29% investment allowance was scrapped, removing tax offsets for re-invested capital.

A Treasury spokesperson stated, "We are committed to maintaining a constructive dialogue with the oil and gas sector to finalize changes and strengthen the windfall tax, ensuring a phased and responsible transition for the North Sea." ($1 = 0.7606 pounds)

(With inputs from agencies.)