Harbour Energy North Sea producer refuses to drill new oil wells because of windfall tax

The largest North Sea oil producer in Britain is refusing to tender for new UK oil wells. It also reviewed its investments to respond to the Government’s tax raids on the sector.

Harbour Energy stated that it has decided not to bid on new blocks in the North Sea licensing round. This is the first since 2019 when the Government imposed a windfall income tax on oil and natural gas producers.

After a slide in share prices, the company was demoted to the FTSE 250. It also stated that it was reviewing its investment levels.

Harbour Energy stated: “As a consequence of the extension to the energy profits tax announced in the Government’s Autumn Statement, We are reviewing our investment levels and company-wide capital allocation.

“This review continues and we have decided to not submit bids as part of this licensing process.

“We have great opportunities in our existing North Sea portfolios and international portfolios. These will be our focus.”

This is a setback for the Government’s ambitions to increase domestic energy production. There has been increased concern about supply security.

The North Sea licensing round was launched in October with Jacob Rees-Mogg, then business secretary, stating that it was “more crucial than ever to make the most out of sovereign energy resources”.

A windfall levy on oil firms, first introduced in May and now increasing to 40pc to 75pc, will raise the overall North Sea producer tax rate from 40pc to 70pc by 2028.

In the face of rising oil and gas prices, the windfall tax was created to pay for household energy bills. The windfall tax was created to pay for higher prices, which resulted in greater profits for fossil fuel producers.

The industry warns that investment could be curtailed.

TotalEnergies, a French oil and gas giant, announced plans to reduce spending in the North Sea by £100m due to the tax.

The FTSE 100 oil giant Shell also stated that it is reviewing plans for investing £25bn in Britain’s energy system because of the tax.

David Bunch (Shell’s UK chairman) said that the tax “brings a strong headwind” in November. He added: “In terms of future projects, you’re going to have to rerun economics and take a view on a project-by-project basis.

Businesses can receive £91.40 tax relief for every £100 they invest in the windfall tax. This is not of much value for companies that are still in the production phase.

Harbour stated in November that it expected to pay $900m in UK taxes by 2022. Of this, $400m will be due to the windfall tax. This estimate was made before the tax was increased by Chancellor Jeremy Hunt in November’s Autumn Statement.

Harbour produced 207,000 barrels per day of oil equivalent in the nine months from September 2022. It also has assets in Norway as well as assets in Indonesia, Vietnam and Mexico.

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