Yahoo Finance Work on North Sea’s ‘best remaining oil field’ delayed amid fears of Labour tax raid
Development of the “best remaining oil field in UK waters” has been delayed because of Labour’s threats to impose new levies and strip the industry of key tax breaks.
Jersey Oil and Gas has told investors that the work on the Buchan field will be postponed for at least a year because of the political uncertainties around the future of the North Sea.
Chief executive Andrew Benitz told shareholders at Jersey’s annual shareholder meeting that the company and its partners needed “fiscal clarity”.
The future of the project has been cast into doubt by the general election.
Labour has pledged to halt the issue of new licences for exploration and drilling, along with increasing taxes on offshore profits from 75pc to 78pc.
Ed Miliband, the shadow energy secretary, has also warned that he would strip the offshore industry of its tax breaks. This would mean offshore operators would be banned from offsetting the costs of investing in new fields against their profits.
The Buchan field already has preliminary permits for drilling and production and Labour has said it will not revoke existing licences.
The key issue for Jersey and its partners is therefore potential changes in taxation.
In a statement at the company’s annual general meeting, Mr Benitz said: “With a UK general election now announced, we are hopeful that fiscal clarity will be forthcoming in short order so that the industry can continue to do what it does best, namely investing in major capital projects that deliver vital low-carbon homegrown energy and highly skilled jobs.
“In the case of the Buchan field, we have a project that will deliver a meaningful contribution to the energy transition process.”
The Buchan oil field, 80 miles north east of Aberdeen, is thought to contain 100 million barrels of oil, with another 40 million in adjacent smaller fields. The field is regarded as easy to exploit because of existing infrastructure nearby.
Brendan Long, director of institutional research at WH Ireland Capital Markets, said: “Buchan is currently the best remaining oil field in UK waters.
“It had been previously exploited so we know a lot about it, making it very low risk. If the UK can’t develop a field like this, then we can’t expect to develop anything.”
Shares in Jersey Oil and Gas, which is listed on London’s growth market AIM, fell more than 18pc on news of the delay.
Mr Benitz said preparatory work would continue for now, including surveys of the seabed needed prior to drilling and preparation of the “Western Isles” – a floating production, storage and offloading vessel.
However, production is now not expected until 2027. Developers were previously hoping to have oil pumping by 2026.
Buchan is being jointly developed by three UK operators: Jersey Oil and Gas, Serica Energy and Neo Energy, who have formed a partnership to exploit Buchan.
Earlier this year Serica Energy secured a 30pc interest in the Greater Buchan Area (GBA) from Jersey Oil and Gas. Neo Energy, operator of Buchan, owns a 50pc stake while Jersey accounts for the remaining 20pc.
David Latin, chairman and interim chief executive of Serica, said: “The current uncertain environment makes investment decisions difficult. The Buchan redevelopment project ticks all the right boxes in terms of its reuse of existing infrastructure, expected low emissions, contribution to domestic security of energy supply, and of course its generation of both UK tax revenues and jobs.
“It is a large project and exactly the kind that any UK Government should be supporting.”
Shares in Serica fell 1.2pc.
The postponement follows a warning from key analysts that Labour’s tax plans for North Sea operators would be devastating for the industry.
Chris Wheaton, an analyst at Stifel, said in a recent note: “Any further increases to the windfall tax take, especially through the removal of investment allowances, would result in substantially lower investment and, therefore, lower tax income for the UK, fewer jobs, loss of skills for the green transition, higher emissions, and the export of jobs, skills and the UK’s energy security to other energy-producing countries.
“Energy security is national security; the UK would lose both, with the decline in North Sea gas production leaving the UK importing 80pc of its gas demand by 2030.”
Labour was approached for comment. Neo Energy declined to comment.
