The imposition of windfall profits tax in the oil sector has resulted in a substantial loss for a British North Sea company.
According to EnQuest, the tax levied on North Sea oil companies last year led to a loss of $21.2m after taxes in the first six months of 2023. The post-tax loss is $21.2m, compared to a profit of $203.5m for the same period in 2018.
North Sea Oil and Gas Operator has urged Jeremy Hunt, to scrape the levy as it caused British firms to suffer large losses during the same period of last year.
Harbour Energy, London Stock Exchange’s largest oil and gas company , also blamed windfall taxes for wiping profits. said the tax had increased its effective tax rate from 98pc to 102pc.
About 15pc is supplied by the company. Harbour went from a nearly $1bn loss to a profit of $8m in the first half. The company warned that its large tax bill has forced it to abandon oil and gas projects within the UK in favor of projects abroad,, mostly in Indonesia and Mexico.
The UK windfall tax, which was introduced in 2022 and increased UK oil and natural gas production taxes by 40pc, is expected to stay in place until at least 2028, despite warnings that it damages profits and investments.
EnQuest, a UK-based energy company, has assets such as Magnus, UK’s farthest offshore platform located 100 miles northeast from Shetland. EnQuest also controls the Kraken Project, east of Shetland. This is one of the largest oil fields in British water. It has operations in Malaysia and also overseas.
In its half-yearly report, the company blamed the tax for the decline in profits. It said that it was “driven by the UK Energy Profits Levy”.
EnQuest reported paying $131.8m of tax, $76m of which was related to the windfall levies.
Amjad Bseisu (EnQuest’s Chief Executive) called for reform in the report, warning it could drive potential investors from the UK.
He said: “The UK oil and gas industry faces significant challenges, and will lose its competitiveness as a result of the uncertainty caused by the changes in the fiscal regime.”
We believe that a timely legislative reform will be required to restore confidence to the UK oil and natural gas sector in order to protect jobs, deliver energy security and achieve decarbonization.
The report also noted that falling oil prices affected profits during the first half of the year.
The company reported that it produced 45.480 barrels equivalent to oil per day during the year ending June, down from 49.726 barrels in the first half 2022. A fall in the global oil price from $89.9 per barrel to $75.8 has also been a factor.
The company said that the revenue for the six-month period ended 30 June 2023 ($732.7 million) was 22.3pc less than the same period of 2022 ($943.5 millions), due to lower realized prices and lower production.
The tax rate was 118 percent after the company added in the windfall tax.
Mr Bseisu stated that the levy made it much harder for the company to fund programmes involving the production of hydrogen and carbon capture and storing. He said the levy “takes cash out the system and limits our capacity to invest in these projects”.
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