Analysts say Britain’s new 25% windfall tax on oil and gas production will barely harm integrated energy majors as BP (New York Stock Exchange: BP) and hull (NYSE: SHEL) but will hit small North Sea producers who derive all their income from the UK
Harbor Energy Inc (OTCPK:PMOIF), EnQuest Inc (OTCPK:ENQUF) and Serica Energy Inc (OTCPK:SQZZF) have all fallen more than 10% in London since Thursday, while the majors were little changed.
BP is most exposed through its oil and gas projects in the British North Sea, but the fields account for just 7% of BP’s production and 4.3% of total profits, according to estimates by RBC Biraj Borkhataria, and the percentages are even lower for Shell (SHEL), TotalEnergies (TTE) and Eni (E).
The tax increase, before any investment deductions, is equivalent to 2.8% of 2022-24 cash flow for BP (BP), 2.4% for Total (TTE) and 1.2% for Shell (SHEL ), according to HSBC analysts, and “the negative effect of the new levy may well be offset to a large extent by write-offs.”
BP (BP) said it should consider the impact of the new levy and tax relief on its North Sea investment plans, noting that the levy is not the one-off measure it expected.
Shell (SHEL) stated that the levy creates uncertainty on the investment climate in the North Sea for years to come and does not support the government’s renewable energy targets.
Despite the warning, some analysts believe the tax regime could encourage developers to fast-track relatively advanced projects such as Equinor’s Rosebank (EQNR) and Shell’s Cambo to avoid taxes.
If North Sea companies don’t invest by the end of 2025 – the year the tax is due to be scrapped – they would be paying far more to the Treasury, according to Wood Mackenzie.
The tax marks a sudden U-turn for Prime Minister Boris Johnson, who had criticized the idea of ”tamp down the companies we need to invest in our home energy”.