North Sea oil and gas companies warn of decline following Labour’s new windfall tax

(Bloomberg) – Changes to the UK’s windfall tax regime for oil and gas companies will accelerate the decline of the North Sea, said companies and analysts.

Chancellor of the Exchequer Rachel Reeves outlined the new Labour government’s plans on Monday, raising the Energy Profits Levy by three percentage points and ending a 29% investment allowance. She said the changes would bring in annual revenue of £1.2 billion ($1.5 billion) to help fill a black hole in the public finances left by the previous government.

An aging oil province like the North Sea, where most fields are heavily depleted and the remaining untapped resources are costly to develop, cannot tolerate these extra burdens, the oil and gas industry said.

“The latest set of changes display a lack of appreciation for the maturity of the North Sea as a production basin,” EnQuest Plc, one of the region’s largest independent producers, said in a statement. “The measures announced will accelerate the decline of domestic oil and gas production.”

The changes could sound a “death knell” for the industry by paralyzing investment for five years, according to consultant Wood Mackenzie Ltd.

“The short-term gains of tweaking the EPL could result in the premature slowdown of investment across the upstream sector which could lead to accelerated cessation of production,” Graham Kellas, senior vice president of global fiscal research at Wood Mackenzie said in a statement.

Lead image source: ExxonMobil