Yahoo Finance Norway threatens to abandon £4.5bn North Sea oilfield over windfall tax
The oil giant behind a £4.5bn North Sea project has threatened to abandon the investment in the strongest backlash yet against Boris Johnson’s windfall tax.
The $100bn Norwegian state energy company Equinor has privately told industry contacts it is reconsidering its plan to drill for oil and gas in the Rosebank field near the Shetland Islands.
Sources said Equinor wants the Government to change the terms of its so-called Energy Profits Levy before committing to the investment.
Shell has separately told analysts it is also less likely to develop the £2bn Cambo project in the North Sea after the introduction of an additional 25pc tax on energy company profits.
Rishi Sunak has imposed the extra levy to raise around £5bn to fund support for British households struggling with increases in energy bills in the cost-of-living crisis.
The Chancellor has said it is right for the Government to tax the "extraordinary" profits energy companies have earned from rising prices. The levy continues to stoke Cabinet disagreement, however. It is understood the Business Secretary Kwasi Kwarteng wrote to Mr Sunak last week to express concerns about the risk to investment in the North Sea and the lack of consultation with the sector.
Energy companies have warned that the hike in tax will deter investment in the North Sea just as Britain tries to secure domestic supplies of energy rather than rely on imports in the wake of Russia's invasion of Ukraine.
They have complained that the windfall tax will push multinational companies to invest in jurisdictions with a more stable fiscal policy.
An industry source said a senior Equinor executive warned the Rosebank project was at risk in a private conversation shortly after the windfall tax was officially announced. They said Equinor has also warned trade body representatives about its fears for the project.
The source said: "The biggest one up for debate now is the Rosebank project. Rosebank in particular is definitely up for grabs. Equinor has privately said that it's under review, but they've not done so publicly.
"Rosebank is a big project, but for Equinor frankly it has bigger projects elsewhere. It would be pretty relaxed about saying we don't want to do that project."
Equinor has also pushed back its decision for the project from May this year until 2023 and recently secured an extension to licences for the development.
Shell's chief financial officer Sinead Gorman told analysts at RBC Capital Markets earlier this month that progress on the Cambo field was less likely in the wake of the windfall tax.
Sources said Shell was pushing for changes to the windfall tax in meetings with the Government and that Cambo had become a "political pawn". But Shell last night denied it had raised Cambo in discussions with the government about the levy.
One industry source said: "Cambo is just on the 'we don't need the hassle' pile from Shell. It's created a massive stink with environmental groups and Shell feels it's just very difficult."
Energy companies are pushing for changes to the windfall tax thorough industry body Offshore Energies UK. The trade body wrote to the Chancellor last week to ask for six urgent amendments. It has asked for a "clear termination date" for the tax and an urgent summit with Downing Street.
Nathan Piper, head of oil and gas research at Investec, said: "Equinor have a global portfolio and they can take the money somewhere else if they are concerned around the political support about the development of oil and gas fields in the North Sea.
"Both Rosebank and Cambo are quite well-defined projects and you're at the point now where the companies are making their final investment decisions. But they will have to reassess that following the windfall tax.
"I'm certain they'll have to reassess in light of the tax changes and it being a costly place for them to develop. Rosebank is a £4.5bn decision when they've just changed the tax terms. It's real money and you wouldn't want to spend it if you thought people were going to move the goalposts again."
"Cambo is also a big investment with a long cycle before you get cash flow. They need a stable taxation regime."
A spokesman for Equinor said: "Equinor welcomes the North Sea Transition Authority's decision to extend the licence on the Rosebank development project. We will continue to work with our partners and stakeholders to ensure we progress and deliver the Rosebank project to strengthen UK energy security."
A Treasury spokesman said: “The Energy Profits Levy will raise £5bn from the extraordinary profits oil and gas companies are seeing to help pay for support for millions of the most vulnerable households across the UK.
"The Levy’s investment allowance means businesses will overall get a 91p tax saving for every £1 they invest."
