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Windfall tax pushes North Sea oil giant into the red

North Sea Oil
North Sea Oil

A British North Sea oil company has suffered a significant profit loss following the imposition of a windfall profits tax on the sector.

EnQuest said the tax imposed on North Sea oil firms last year helped turn a pre-tax profit of $112.9m (£89m) into a post-tax loss of $21.2m in the first half of 2023. This compares with a post-tax profit of $203.5m in the same period last year.

The North Sea oil and gas operator has urged Jeremy Hunt to scrap the levy, as it causes British firms to suffer heavy losses in the same period last year.

Last month Harbour Energy, the largest oil and gas producer listed on the London Stock Exchange also blamed the windfall tax for wiping out profits, saying the tax had pushed its effective tax rate to 102pc.

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The firm provides roughly 15pc of Britain’s oil and gas. Harbour swung from a near $1bn profit to an $8m loss during the first half of the year. It also warned that the scale of its tax bill has forced it to abandon new oil and gas projects in the UK and shift investment into projects overseas, it said, mainly in Indonesia and Mexico.

The UK windfall levy, introduced in 2022, increased total UK oil and gas production taxes from 40pc to 75pc and is set to remain in place until 2028 despite warnings it is damaging profits and investment.

EnQuest is a major UK energy operator with assets including Magnus, the UK’s most distant offshore platform, lying 100 miles northeast of Shetland. It also controls the Kraken project, east of Shetland – one of the biggest oil fields in British waters. It also has overseas operations in Malaysia.

Its half-yearly reports specifically blamed its profits slump on the tax, saying it had been “driven by the impact of the UK Energy Profits Levy”.

The report shows that EnQuest paid $131.8m in tax of which $76m was linked to the windfall levy.

In the report Amjad Bseisu, EnQuest’s chief executive, called for reform of the tax, warning that it risked driving potential investors away from the UK.

He said: “The UK’s oil and gas sector faces significant challenges and loss of competitiveness due to uncertainty following the adverse changes to the fiscal regime.

“While we appreciate the Government’s intentions to improve the attractiveness of the sector through the Energy Security Investment Mechanism, we believe timely legislative reform is required to restore confidence in the UK oil and gas sector to protect jobs and deliver both energy security and decarbonisation.”

However, the report pointed out falling oil prices had also had an impact on profits in the first six months of the year.

It said it produced 45,480 barrels of oil equivalent per day in the year to June – down from 49,726 in the first half of 2022. The fall in global oil prices, from $89.9 to $75.8 per barrel, also had an impact.

It said: “Revenue for the six months ended 30 June 2023 was $732.7 million, 22.3pc lower than the same period in 2022 ($943.5 million), reflecting lower realised prices and lower production.”

The company added the windfall tax had left it facing an overall effective tax rate of 118pc.

Mr Bseisu said it also made it far harder to fund the company’s plans for programmes involving hydrogen production and carbon capture and storage, saying the levy was “taking cash out of the system and limits our ability to invest in such projects”.