Oil & Gas

Windfall tax presents ‘negative effects on quite a few companies’

Aberdeen University’s professor Alex Kemp has said that the windfall tax will make it “more difficult” for new players in the North Sea to invest.

The petroleum economist said: “Certainly there are negative effects on quite a few companies from the existence of the windfall tax.”

Prof Kemp explained that North Sea firms with the income available to invest in the region will be able to take full advantage of investment incentives offered by the Energy Profits Levy (EPL) and will largely be unaffected.

Companies that do not have the “ability to fund new investment will certainly be impaired now” due to the recent drop in oil prices.

“From someone who’s got the income and can use it during the life of the windfall tax, which we’ve been promised will be to the end of 2028, that could give a very high rate of relief if the investor has got other income,” he added.

It comes as Conservative MPs have reportedly spoken with the Chancellor of the Exchequer, Jeremy Hunt, warning that the windfall tax as it now stands will risk ‘destroying’ North Sea production.

Trade body Offshore Energies UK (OEUK) and companies including the North Sea’s largest producer, Harbour Energy (LON: HBR), have also warned the basin windfall tax risks diverting investment to overseas regions.

Oil prices today have also hit the lowest price since 2021 following Covid protest unrest in China.

Kemp said: “The lower oil price reduces cash flows to the industry and then on the mature fields, it also accelerates the time when they reach their economic limit.”

However, the Aberdeen University expert believes that in OPEC’s upcoming meeting, scheduled for the 4th of December, “they will cut production out in an attempt to get the price up.”

He added: “It’s not only China that is suffering at the moment, the UK economy is not growing, we’ve been going the other way and that will hold back the demand for oil and gas.”

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