Oil & Gas

UK Government to implement windfall tax price floor – report

The UK Government is reportedly due to introduce a price floor to the oil and gas windfall tax.

According to the FT, citing people “briefed on the government’s plans”, chancellor Jeremy Hunt is expected to introduce the measure in coming days.

Similar reports came from the London media in March, but the measure didn’t materialise.

A price floor has been a key ask of industry in light of the hiked windfall tax, which was increased to 35% in November.

This has seen the North Sea industry levied at an overall rate of 75% when coupled with other measures.

The price floor mechanism would mean the levy would be removed if oil and gas prices drop, though the newspaper says it is not clear on where the floor would be set.

Treasury officials are due to meet oil and gas industry chiefs in Aberdeen tomorrow, it added.

‘Threatens investment’

When the windfall tax was raised in November, trade bodies like Offshore Energies UK (OEUK) said it “threatens to drive investment out of the UK altogether”.

Since last summer, oil and gas prices have dropped back to more average prices – with gas at around 60p a therm, from a peak of £6, and oil roughly $75 a barrel, down from $130 last year.

Since then Harbour Energy, the North Sea’s largest producer, has blamed the measure for it having to cut around 350 jobs from its North Sea team.

Harbour, now rumoured to be in merger talks with Gulf of Mexico-focused Talos Energy, may feel this comes a little too late to make a difference for them.

A lack of price floor has also been a measure stalling key project sanctions like the Cambo oilfield, with bosses saying it hinges on the implementation of reforms.

When the windfall tax was introduced in May 2022, under then-Chancellor Rishi Sunak, a price floor mechanism was in place, but this was later removed by Jeremy Hunt during his November reforms.

This latest move comes amid a political storm for Labour around the oil and gas industry, and threats to cease North Sea licensing.

Consultancy Wood Mackenzie said a Labour government threatens $30bn of UK energy investment.

Labour has also threatened to tax the industry more heavily, including removing an investment allowance linked to the tax.

The Treasury and the Department for Energy Security and Net Zero have been contacted for comment.

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