Yahoo Finance Windfall tax all but wipes out North Sea oil giant’s £2bn profit
The North Sea’s biggest oil producer has warned it will be forced to cut staff and investment as it claimed its profits were all but wiped out Rishi Sunak’s windfall tax.
Chief executive Linda Cook said the company was looking to grow the business outside of Britain where higher tax rates have “disproportionately impacted” UK-focused drillers.
Harbour added it had cut its spending plans for the UK for the year, with some opportunities “delayed or no longer being progressed”.
The FTSE 250 company has been one of the biggest critics of the Prime Minister’s move to increase the tax rates on UK oil and gas companies, from 40pc to 65pc and then 75pc. The 75pc rate came into force on January 1.
The increase was introduced in two stages last year to help households struggling with soaring energy bills because of higher wholesale oil and gas prices.
Producers warned it would lead to a drop in investment in the basin, harming the UK’s energy security.
TotalEnergies, the French oil and gas giant, has said it will cut North Sea investment by £100m or 25pc this year because of the tax.
Harbour Energy made pre-tax profits of $2.5bn (£2.1bn) during 2022, more than 700pc higher than the previous year, as oil and gas prices leapt and its production increased.
However, it reported post-tax profits of only $8m once the impact of higher tax rates in the UK were taken into account.
It booked taxes of $2.4bn, made up of taxes for 2022 of $706m as well as a deferred expense of $1.7bn, $1.5bn of which relates to the UK’s so-called Energy Profits levy.
Its bill for 2022 from the UK’s windfall tax was $326m, of which it has paid $205m, with the balance due this year.
The levy includes generous investment allowances, but Harbour had recently completed investment on its new Tolmount gas field in the southern North Sea.
Ms Cook said: “The UK Energy Profits Levy, which applies irrespective of actual or realised commodity prices, has disproportionately impacted the UK-focused independent oil and gas companies that are critical for domestic energy security.
“For Harbour, the UK’s largest oil and gas producer, it has all but wiped out our profit for the year.
“This has driven us to reduce our UK investment and staffing levels. Given the fiscal instability and outlook for investment in the country, it has also reinforced our strategic goal to grow and diversify internationally.”
Harbour said it plans to invest 85pc of its $1.1bn capital spending this year in the UK, compared to 15pc internationally.
It added: “We reduced our planned 2023 UK capital expenditure following the changes to the Energy Profits Levy announced in November, with certain investment opportunities delayed or no longer being progressed.”
The company first flagged staffing cuts in January. It has not given a figure, but said today it would be “significant”.
Industry sources estimate it is in the hundreds. The company employs around 1,500 in the UK. A review of the businesses is expected to be completed in the second half of the year.
Despite its hit to post-tax profits, the company announced a new $200m share buyback programme.
On top of its $200m annual dividend policy, it brings total announced shareholder returns to $1bn £840m since December 2021.
Harbour Energy became the UK’s largest producer after buying up oil and gas wells from Shell and Conoco-Phillips in 2017 and 2019.
It joined the London stock exchange after taking over Premier Oil in 2021, and is currently valued at around £2.4bn.
During 2022 it produced 208,000 barrels of oil equivalent per day, up from 175,000 barrels of oil equivalent per day in 2021.
It is currently focused on the UK, which accounted for 97pc of its production during the first nine months of 2022, but also has assets in Mexico and Indonesia.
The company said it sold oil during the year for an average $78 per barrel and gas for 86 pence per therm, which was 30-60pc higher than last year, but far lower than average wholesale prices.
Producers are pushing Jeremy Hunt, the chancellor, to introduce a floor on the windfall tax so that it falls away as prices fall.