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- North Sea oil and gas production is currently taxed at a headline rate of 75%.
- The new Labour government has promised to raise the tax on energy profits to 38%
Serica Energy has warned it could cut investment due to “unjustifiably punitive” tax rates amid changes to the government’s energy profits tax (EPL).
North Sea oil and gas production is currently taxed at a headline rate of 75 percent, which includes a 35 percent EPL introduced two years ago in response to rising energy prices.
The new Labour government has promised to increase the EPL to 38 per cent, extend its term until the end of this term and remove tax breaks for extractive activities.
Punitive: North Sea oil and gas production is currently taxed at a general rate of 75 percent
British mid-cap oil and gas companies have criticised the “windfall tax”, saying it discourages domestic investment and prevents them from remaining profitable.
Serica said the investment was necessary to prolong operations and was a “vital element” for its UK supply chain, on which it has spent more than £1bn over the past five years.
He warned that “similar expenditures will be lost in the future” if government taxes make future investments uneconomical.
The company singled out the Buchan Horst field in the North Sea as a project whose future depends on “an appropriate fiscal regime”, including full tax relief for capital expenditure.
Serica chief executive Chris Cox said: “Despite an unjustifiably punitive tax regime… what is clear is that thanks to our investment in our assets and our efficient operating model, our productive assets continue to generate cash.”
The group said its producing fields are profitable and are expected to generate more than $500 million in the coming years, assuming existing capital commitments and commodity prices remain at current levels.
Additionally, the company revealed that its revenue fell about 15 percent to $462 million in the first six months of 2024, primarily due to an unplanned outage at its Triton facility in May.
Because of the problems at Triton, Serica expects its average production this year to be at the lower end of its previously estimated range of 41,000 to 46,000 barrels of oil equivalent per day.
Turnover was also affected by lower gas prices, which averaged 73 pence per thermal unit, compared with 108 pence per thermal unit last year.
Pre-tax profit fell about 30 percent to $188.5 million, while after-tax profit fell $16 million to $82.5 million.
However, the company is maintaining its interim dividend at 9p per share, having recently completed a £15m share buyback.
Helmsman He added: ‘Our confidence in our cash generation prospects, coupled with our strong balance sheet, gives us capital allocation options.
‘The most important thing among them will always be to support material returns for shareholders.’
Serica Energy Shares The company’s shares fell 4.6 percent to 111.7 pence on Tuesday afternoon, bringing its losses since the start of the year to about 51 percent.
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