UK's proposed windfall tax increase
The British government's plan to raise the windfall tax on North Sea oil and gas producers is expected to lead to a nearly £12 billion ($16 billion) drop in state revenue and accelerate a decline in output, according to industry group Offshore Energies UK (OEUK), Azernews reports citing Reuters.
The Labour government, elected in July, aims to use these changes to boost renewable energy and shift away from oil and gas to reduce carbon emissions and combat global warming. However, OEUK forecasts that the new tax regime will cut tax revenue by £12 billion between 2025 and 2029, compared to the current system.
Capital investment in the sector is projected to plummet from approximately £14 billion to £2.3 billion over the same period. OEUK CEO David Whitehouse warned that the proposed tax changes would lead to an accelerated decline in domestic oil and gas production, reducing tax revenue, job support, and overall economic value.
NEO Energy, which holds a 50% stake in the Buchan Horst development project in the UK North Sea, expressed concerns that the increased fiscal and regulatory uncertainty would hinder investment across its portfolio.
Production in the North Sea has significantly decreased from a peak of 4.4 million barrels of oil equivalent per day (boed) at the turn of the millennium to around 1.3 million boed today. The North Sea Transition Authority (NSTA) projects that production could fall below 200,000 boed by 2050.
Following its election, the Labour government announced it would raise the Energy Profits Levy (EPL) from 35% to 38% starting November 1, increasing the overall tax rate on oil and gas activities to 78%, among the highest globally. The duration of the levy has also been extended to March 2030, and the 29% investment allowance, which allows companies to offset tax from reinvested capital, will be eliminated.
A Treasury spokesperson stated: "We are committed to maintaining a constructive dialogue with the oil and gas sector to finalize changes to strengthen the windfall tax, ensuring a phased and responsible transition for the North Sea."
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