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North Sea oil behemoth turns to Asia as windfall tax bites

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North Sea oil - Michael Saint Maur Sheil/ Digital Vision
North Sea oil - Michael Saint Maur Sheil/ Digital Vision

One of the North Sea's biggest energy producers is preparing to invest in South East Asia instead of the UK in the wake of Rishi Sunak's £5bn windfall tax.

North Sea specialist EnQuest is drawing up plans to expand outside UK waters in an early sign of the impact of the Chancellor’s levy on oil and gas companies.

It came as Shell warned that the tax puts a decade of investment at risk.

The FTSE 100 oil giant, which is also understood to have raised its concerns directly with the Government, said: “In its current form the levy creates uncertainty about the investment climate for North Sea oil and gas for the coming years.

“Longer term, the proposed tax reliefs for investment don’t extend to the renewable energy system we want to drive forward in the UK and invest in very substantially. When making plans for the next decade and beyond, we need certainty."

EnQuest decided to narrow its focus to the UK and Malaysia in the wake of the oil price crash. But it is understood the company has been looking at further expanding its presence in South East Asia amid the rising tax burden on UK oil and gas producers.

A City source said the company had found the Malaysian government supportive and is open to locations outside the North Sea. It planned to calculate the impact of the Chancellor's new measures before making any decisions.

A spokesman for the company said: “EnQuest is committed to the North Sea. We are currently executing our largest capital investment programme since 2014 and our plans are continuing unchanged.

“We have invested around £4bn in the North Sea over the past 12 years, and maintain our view that long-term, stable taxation arrangements are important for the industry.”

EnQuest operates a number of sites in the North Sea, including Kraken, one of the largest oil fields in the region. It has the 10th largest North Sea resources, according to Bank of America.

Mr Sunak has imposed a windfall tax to help fund a £15bn package to prop up households as the cost-of-living crisis deepens. The industry has warned that the tax risks causing a slump in North Sea investment at a time when Britain wants to bolster its energy security and is demanding investment to wean the country off foreign fossil fuel.

The additional 25pc “energy profits levy” on profits is expected to raise an extra £5bn for the Exchequer to help Mr Sunak roll out support for households. It will last for three years or until energy prices return to normal levels.

However, the Chancellor also announced a 80pc investment allowance, nearly doubling a tax relief for when companies invest. For every £1 invested, businesses make a 91p saving on their tax bill.

Bank of America analyst Matthew Smith said the details of the levy means that EnQuest is likely to pay $300m (£237m) between 2022 and 2024.

Mark Wilson, analyst at Jefferies, said the move will take the marginal tax rate for oil and gas companies to 65pc, the highest level this century. However, he said the investment allowance “provides a material shield” for those in the industry making new investments.

Shares in EnQuest have slipped almost 17pc this week while Harbour Energy, the biggest North Sea producer, has dropped 14pc.

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