North Sea producer: Windfall tax forced us to cancel energy projects

The Government’s Windfall Tax has caused a North Sea developer to warn that it will be forced to cancel project and reduce production due to the “severe impacts” of.

Ithaca Energy behind the controversial Cambo Oil Field has informed investors that it will write $74m off of assets value as a result of the Energy Profits Levy.

It said that the lower investment will result in a production decline of at least 6pc next year.

The company claimed that the lower prices of gas had squeezed its profits.

Gilad Myerson is the executive chairman of Ithaca. He said that “the Energy Profits Levy has continued to have a significant impact on investments in the UK North Sea as well as Ithaca Energy’s own investment program across its diverse and high-quality non-operated and operated asset base.”

We continue to engage constructively with the UK Government to highlight the impact the current fiscal regime has on the industry’s future and the UK’s stated energy-security and net-zero ambitions.

Ithaca announced on Wednesday that its net profit for the six-month period ending June 30 had fallen from $1.6bn down to $160m.

Ithaca attributed the decline to a “reduction of planned activity due to the windfall tax”.

The tax “has already resulted in deferring or cancelling” investments in assets in Greater Stella Areas, Montrose Arbroath Areas and Elgin Franklin Areas.

Ithaca’s oil production is expected to drop by over 5,000 barrels a day in the Greater Stella Area in 2024.

The company forecasts that it will produce 68,000 to 74,000 barrels per day of oil in 2023. This means the reduction could be at least 6.6% of annual production.

Ithaca, in an update on the stock exchange, said: “As we prepare capital investment plans for 2024 and beyond ithaca Energy, and our diverse partners, are re-evaluating the attractiveness and potential of capital deployment in the context an Energy Profits Levy that will last indefinitely, and what we consider to be the return of normal commodity prices.

As a result of the current fiscal climate, we expect that our production forecast for 2024 will fall below levels in 2023.

We strongly believe that the Energy Profits Levy needs to be amended further.

Ithaca, as well as other oil and natural gas producers, have repeatedly warned that a windfall tax could hurt investments in the North Sea and threaten jobs.

Rishi Sunak, when he served as chancellor, first announced the levy on May 20, 2022. This was in response to opposition Labour MPs who wanted the money for the support of households during the current energy crisis.

Jeremy Hunt, current Chancellor of the United States, has increased and extended this levy to November 2022. This will put oil companies at a 75pc effective tax rate until 2028.

The levy prompted stern warnings from experts that it would reduce the viability of a number of gas and oil projects and threaten their funding.

Banks lend money to oil and gas companies on the basis of their recoverable reserves and how much they will cost to extract.

Treasury announced in June of this year a floor price for the levy, but industry insiders thought it was futile. Even Whitehall concluded that the levy would never be activated.

Gareth Davies (the Exchequer secretary) insisted that at the time, the changes would allow the industry to “invest in domestic energy”.

On Friday, officials will try to convince banks to lend money to North Sea producers.

The North Sea output has been declining for a long time, but the UK will still produce enough oil and gas in 2021 to cover 72pc of UK needs.