Windfall tax has ‘all but wiped out our profit for the year’, biggest North Sea oil producer says

Business

The biggest producer of oil and gas in the North Sea has reported that the government’s energy profits levy (EPL) has “all but wiped out our profit for the year”.

Harbour Energy said it had “reduced our UK investment and staffing levels” and bolstered its aim to expand elsewhere as a result of the hit from the windfall tax.

It has become something of a political football during the cost of living crisis to date, with opposition parties accusing the government of not going far enough in its efforts to recover costs of its energy bill support for households and businesses from extraction companies’ UK operations.

The likes of Shell and BP have revealed record profits on the back of elevated oil and gas prices due to the war in Ukraine, though their respective upstream activities expand far beyond the boundaries of the North Sea.

UK-focused Harbour had warned in January that it was to make head office workers in Aberdeen redundant in direct reaction to the hike in the levy, announced by Chancellor Jeremy Hunt in November last year.

It took the EPL rate to 35% from 25% but the decision took the effective tax rate on North Sea profits to 75% because of the 40% corporation tax charge already applied.

However, some investment relief is granted under the levy.

Harbour’s chief executive said the job losses, yet to be completed, would be “significant” and it was looking to cut costs by $40m this year.

Its profits after tax for 2022 came in at $8m (£6.7m) due to a “$1.5bn one off non-cash deferred tax charge associated with the EPL”, the company said.

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BP boss defends UK tax contribution

But shareholder distributions of $553m were made during the year and it proposed a $100m final dividend which marked a 9% increase in awards during the year.

A new share buyback plan worth $200m was also revealed.

Shares fell 2% at the open.

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Chief executive Linda Cook said: “The UK Energy Profits Levy, which applies irrespective of actual or realised commodity prices, has disproportionately impacted the UK-focused independent oil and gas companies that are critical for domestic energy security.

“For Harbour, the UK’s largest oil and gas producer, it has all but wiped out our profit for the year.

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“This has driven us to reduce our UK investment and staffing levels.

“Given the fiscal instability and outlook for investment in the country, it has also reinforced our strategic goal to grow and diversify internationally.”

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‘These are the windfalls of war’

Labour is among government critics urging that the EPL is more punitive given that households and businesses are suffering from record energy bills.

The Liberal Democrats, meanwhile, seized on revelations on Thursday, that now-departed Shell boss Ben van Beurden had received a 53% rise in awards last year to £9.7m, as evidence that a higher tax rate should be applied.

Mr Hunt is widely expected to maintain the energy price guarantee at its current level of £2,500 in his budget next week rather than cut the level of support from April as had been planned.

This is due to a fall in wholesale gas costs which has reduced the expected cost of the financial aid package.

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