North Sea oil producers want a price floor to limit UK windfall taxes

Executives and industry sources suggest that the British government should establish a price ceiling to reduce the impact of its windfall tax on North Sea oil and gas producers. Some companies are struggling to access funding because they have limited access.

Executives interviewed by Reuters stated that the capital restriction, which could limit investments in new energy sources, is inconsistent with the government’s efforts to increase domestic energy security following the Ukraine war. This highlighted the danger of relying upon foreign supplies.

However, climate campaigners argue that renewable energy should be rolled out faster to reduce dependence on imported fossil fuels and to increase profits in the hydrocarbon industry.

Prime Minister Rishi Sonak announced last month plans to increase the Energy Profits Levy (EPL), which is a tax on oil and natural gas companies, from 25% to 35%. This will raise the total taxes on this sector to 75%. It is one of the highest in the world.

According to the government, the levy would help raise funds for people who are struggling to pay rising living costs. This was largely due to energy prices which soared following Russia’s invasion of Ukraine in February.

GRAPHIC: Britain’s largest oil and gas producers – here

Sources and executives claimed that producers are facing a problem as banks have reduced their credit facilities by 40% due to the tax changes.

Sources said that oil and gas producers will meet with representatives from the Treasury and Department for Business, Energy and Industrial Strategy on Friday to discuss EPL.

BEIS declined to comment. The Treasury declined to comment on a request.

Gilad Myerson, Ithaca Energy’s Executive Chair, stated that the tax had created additional uncertainty in debt financing markets.

This is especially true for smaller and medium-sized producers who have a portfolio that is focused on the British North Sea. Banks base their credit on the size and forecast of future energy prices, and not on yet-produced oil and natural gas reserves.

Bankers and executives said that as the tax burden increases on companies, so does their future revenue. This causes banks to reduce borrowing facilities known as reserve-based lending (RBL). These are reviewed several times per year.

RBLs are especially important for investment plans by smaller producers.

One industry source stated that this does not only impact the willingness of people to invest, but also their ability to invest.


The new windfall tax is not a welcome surprise for industry and climate campaigners.

Climate activists are critical of the EPL’s inclusion of a mechanism that allows oil-and-gas producers to reduce their tax bill if it invests in hydrocarbon production.

Producers are concerned that the EPL doesn’t include a price floor at which tax is not applicable. This was also a concern raised by TotalEnergies as well as other producers.

Myerson stated that “the lack of a definition for ‘normalised prices’ unsurprisingly created an issue in debt providers modelling borrowing capacity.”

However, he said Ithaca would still invest in two of North Sea’s most undeveloped fields, the Equinor-operated Rosebank Project and Ithaca’s Cambo Project in which it holds stakes.

Ithaca was listed on the London Stock Exchange on Nov. 9, and shares have lost more than 20% since then, largely because of the windfall tax announced on Nov. 18, analysts stated.

Benchmark Brent oil prices trade above $80 per barrel. This is far lower than the spike of well over $100 that occurred shortly after the Ukraine war. The historical average for natural gas prices is still higher than it was in the past.

Jacques Tohme is the director and founder at Tailwind, a North Sea producer. He said he didn’t object to a higher rate of tax, but that a lack of stability rules made it more likely for investors to flee the North Sea.

Tohme stated, “We are happy to pay higher taxes, but we need to set a ceiling of $75 to $100 per barrel above which a real windfall tax can apply.”

Shell and Equinor, among others, have already stated that they will be reviewing their North Sea investments. TotalEnergies, France, said it would reduce British investments by 25% next year.

CEO of Serica Energy, Mitch Flegg, called for a price floor on the EPL. Without this, the basin could see a decline in investment.

Flegg stated that they are looking at opportunities in other countries as well as the UK.

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