Oil producer Harbour Energy, the largest in the UK, is poised to elevate its investments in the North Sea both this year and potentially in 2024. However, the CEO of the company, Linda Cook, expresses concern that a forthcoming government could reduce the investment tax break associated with the Energy Profits Levy windfall tax.
Cook highlights a "window of opportunity" for investments until 2025 due in part to the substantial tax breaks offered by the Levy. Introduced in May 2022 by then Chancellor of the Exchequer Rishi Sunak as a response to surging global energy prices following Russia's Ukraine invasion, the Energy Profits Levy raised the tax rate on oil and gas producers from 40% to 75%. It also incorporated a tax break enabling energy firms to reduce their tax obligations by up to 91p per pound of investment.
While Harbour Energy's UK capital expenditure for the current year surpasses last year's, Cook acknowledges uncertainty regarding the years beyond 2023. The approaching general election before January 2025 and anticipated shifts in political power could impact the future of the Levy and its associated tax breaks.
The introduction of the Levy was coupled with a fixed pricing floor set by HM Treasury for the energy market. Should brent crude fall below $71.40 per barrel, the tax on energy companies' profits would revert from 75% to the standard rate of 40%.
Despite a subsequent downward trend in energy prices since the market's peak in June 2022, where brent crude reached $112 per barrel, prices have yet to dip beneath the Treasury's established benchmark. HM Treasury asserts that the Energy Profits Levy has already generated around £2.8 billion ($3.5 billion) in additional tax revenue, with a potential contribution of £26 billion to the national budget by its expiration in 2028. The ongoing dynamics in energy markets and evolving political landscape make Harbour Energy's investment decisions a matter of careful strategic consideration in the midst of these uncertain times.
By fLEXI tEAM