UK’s Hunt Extends North Sea Oil, Gas Windfall Tax by a Year

UK’s Hunt Extends North Sea Oil, Gas Windfall Tax by a Year

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(Bloomberg) — UK Chancellor of the Exchequer Jeremy Hunt said he would extend the windfall tax on the profits of oil and gas companies by one year.

The Energy Profits Levy was introduced in May 2022 to raise funds to help people who faced soaring energy bills, just as oil and gas companies reaped record earnings. The 35% charge will now expire in 2029, instead of March 2028. Bloomberg reported the planned extension last week.

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“Because the increase in energy prices caused by the Ukraine war is expected to last longer, so too will the sector’s windfall profits,” Hunt said Wednesday in his budget speech.

The announcement is a blow to the oil and gas industry which is “facing a fourth round of fiscal change and turmoil in less than two years,” said David Whitehouse, chief executive officer of the sector’s leading trade group Offshore Energies UK. The change makes “it impossible to plan investment for the energy transition.” 

The move comes as the chancellor was looking at measures to raise funds for an expected cut to national insurance in his budget. Before the announcement, the Office for Budget Responsibility had expected tax receipts from the oil and gas industry — including corporation and petroleum revenue levies — to raise £6.1 billion ($7.8 billion) in 2023-2024 and fall steadily to £2.1 billion by 2028-2029 as production and energy prices decline.

The windfall tax has been heavily criticized by North Sea oil and gas producers for disproportionately impacting smaller companies. While Russia’s war in Ukraine help push up profits for energy giants such as BP Plc and Shell Plc, the bulk of those earnings come from operations outside of the UK and therefore aren’t taxed in Britain.

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Shell said the tax extension will further undermine industry confidence about investing in the North Sea. “It will negatively impact companies’ ability to attract capital to deliver energy security for the UK today, invest in its transition to low carbon energy, while supporting jobs and economic value to Britain,” a spokesperson for the company said.

“The UK oil and gas industry is not benefiting from ‘windfall profits’ – current oil prices are down 20% and gas prices are down 75% vs 2022 when the windfall taxes were initially introduced,” Gilad Myerson, chairman of Ithaca Energy Plc, one of Britain’s largest oil and gas producers, said in a statement. “It’s imperative that the UK government creates a tax environment that promotes investment in our own domestic resources.”

Environmental groups also criticized the budget. Greenpeace UK’s head of climate, Aakash Naik, said that Hunt was “refusing to invest properly in the green economy,” while Uplift Executive Director Tessa Khan said that “even as he takes with one hand, the Chancellor is giving the industry billions in tax breaks to develop new oil and gas projects.”

(Updates with industry comments from fourth paragraph, environment group comments in last)

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