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Gas producer Serica to offset ‘large element’ of windfall tax

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Oil and gas companies which invest in the UK can escape most of the new windfall tax (Jane Barlow/PA) (PA Archive)
Oil and gas companies which invest in the UK can escape most of the new windfall tax (Jane Barlow/PA) (PA Archive)

One of the UK’s biggest gas producers has said it will be able to offset a “large element” of the new windfall tax that the Government has put on North Sea explorers.

Serica Energy said it is planning to spend around £60 million on two projects in 2022, which will help it save on its tax bill.

The Government said last month that it would add an extra 25% tax to what is already paid by oil and gas producers in the North Sea.

Unsurprisingly this hit the share price of some companies, including Serica, which produces around 5% of the UK’s gas annually.

The value of the firm’s shares dropped by more than a fifth in the days following the news.

But ministers also left a door open, allowing companies like Serica to reduce their tax bill by 91.25p for every £1 they invest in the UK.

Serica said it expects its £60 million investment “to be eligible towards this tax saving”.

Our established strategy of investing in our portfolio to enhance production and create greater value means that Serica is well placed to take advantage of the investment incentives included in the (Energy Profits) Levy

Mitch Flegg, Serica Energy

“This will offset a large element of the Energy Profits Levy that would otherwise be payable on Serica’s profits this year,” the business said on Monday.

Chief executive Mitch Flegg said: “Our established strategy of investing in our portfolio to enhance production and create greater value means that Serica is well placed to take advantage of the investment incentives included in the Levy.

“We have built a strong cash position and balance sheet and this, combined with strong cash flows and being a current taxpayer, gives us the leverage and resources to do so.”

But he still aimed some veiled criticism at the Government’s plans, as the business said “fiscal instability” is unwelcome.

“Although Serica has financial strength, our industry operates within unusually long investment horizons against a backdrop of often highly volatile commodity markets and business cycles,” Mr Flegg said.

“We therefore encourage policymakers to consider the importance of fiscal stability in enabling government and industry to meet the mutually set objectives of sustaining investment in the UKCS at a level capable of ensuring security of oil and gas supply in volatile markets and delivering energy transition targets.”

Serica’s shares jumped around 10% following the news.

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