The UK government’s effort to boost investment in the North Sea by scaling back the windfall tax on oil and gas producers has taken a hit when one of the basin’s main operators blamed the levy for stopping drilling.
Ministers introduced a price floor on the windfall tax on Friday after months of lobbying from the industry, which claimed it was deterring investment and endangering jobs and energy security.
However, hours after the announcement, Apache, operator of the Forties oil field for the past 20 years, said it would halt all drilling in the North Sea, citing the “challenging UK macro environment with its increasingly costly and burdensome tax and regulatory regime.” ” blamed.
The company confirmed that the move would lead to job cuts in Aberdeen.
Apache produces about 50,000 barrels of oil equivalent per day, according to analysts Wood Mackenzie, making it the ninth-largest operator in the North Sea.
Forties is one of the largest and oldest oilfields in the UK’s North Sea and forms part of the supply underlying the Brent crude oil benchmark contract, and the aging asset requires regular work to maintain production.
Apache’s move follows months of turmoil among producers over changes to the tax regime, with Harbor Energy, the North Sea’s largest producer, warning it will shift investment to the US.
The Labor Party has said it will terminate new gas and drilling licenses in the North Sea if it wins general elections expected next year.
The tax rate on oil and gas rigs in the North Sea was raised to 75 percent last year at the height of the energy crisis, as the government sought to raise money to protect households from skyrocketing wholesale energy prices.
Under the measures announced Friday, it will now return to pre-crisis levels of 40 percent if oil and gas prices fall below the long-term average under the so-called Energy Security Investment Mechanism.
The bottom is set at $71.40 for crude oil and £0.54 therm for gas. Both would need to average below that level for two consecutive quarters to trigger the tax rate cut.
The move sparked backlash from campaigners, who point out that consumers continue to face high energy bills. Wholesale prices for oil and gas have fallen sharply in recent months, but government support to households and businesses has also been phased out.
Georgia Whitaker, a climate activist with Greenpeace, said the tax contains “more loopholes than a block of Swiss cheese”.
But industry figures have also expressed frustration that the government will still take a large share of profits when prices are strong, saying this would still deter investment in a cyclical industry prone to boom and bust .
David Whitehouse, CEO of trading group Offshore Energies UK, said on Friday that the price floor was a “step in the right direction” but added that “a lot more will need to be taken to restore confidence in our industry”.
It comes as Norway’s state-owned oil company, Equinor, and its partner Ithaca Energy are preparing to decide whether to go ahead with their major new North Sea project, Rosebank.
Gareth Davies, Chancellor of the Exchequer, said it was “important that we secure investment in our own domestic supply”, adding that it would be “irresponsible to close the taps on the North Sea overnight turn”.
After peaking at over £6 per therm last summer, wholesale gas prices in the UK are back at just over 60p per therm, only slightly above the long-term average of the past decade. The oil price is round again $75 a barrel — about the level they were at before the Russian invasion of Ukraine — after hitting $130 a barrel last year.
The Treasury said on Friday it did not expect the price floor to be triggered before the windfall tax’s planned end date of 2028, based on projections from the Office for Budget Responsibility, the tax watchdog. It said the levy has raised around £2.8bn so far and is expected to raise nearly £26bn by March 2028.
The measure drove up the share prices of oil producers on Friday. Harbor Energy climbed 1.45 percent to £2.49. Serica Energy climbed 1.86 percent to £2.46.
Neivan Boroujerdi, at Wood Mackenzie, said: “I think this is a step in the right direction and could have a positive impact on short-term investment. But it does nothing to dispel the long-standing uncertainty that has engulfed the industry.”