APACHE has confirmed that it is halting drilling in the North Sea due to the windfall tax being levied on operators.
The US firm – one of the top 10 operators in the UK Continental Shelf – also said it would be reducing its British workforce because the Energy Profits Levy has made it less competitive.
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The announcement was made just hours after the UK Government’s new price floor on the tax – designed to renew confidence among companies and investors – was met with a lukewarm response from industry.
A new price trigger will cut the overall tax rate on energy firms from 75% to 40% if oil and gas prices fall to defined historic norms for two consecutive quarters.
But the tax rate will only return to 40% if both average oil and gas prices fall to or below $71.40 per barrel for oil and 54p per therm for gas.
Treasury papers show officials believe that the floor will never be triggered, based on current price projections. This means North Sea operators are likely to be left stuck on one of the highest tax rates in the world for several years.
Apache confirmed that this would lead to an unspecified number of job losses in its UK business.
“We are reassessing our investments, as we consider the challenging UK macro environment with its increasingly costly and burdensome tax and regulatory regime,” an Apache spokeswoman said.
“Given the business climate for the oil and gas industry in the UK, these assets have become less competitive in comparison to the rest of our portfolio,” she said.
Sir Ian Wood, one of the leading figures in the North Sea industry for 50 years, joined a chorus of concern about the fiscal regime over the weekend.
“The introduction of a price floor to the Energy Profits Levy is a modest step toward creating a somewhat more stable fiscal regime that will incentivise investment toward achieving greater domestic energy security,” he said.
“As prices return to normal and the windfall no longer exists, oil and gas producers are still experiencing one of the highest tax burdens of any sector in the world and the number of operators who have publicly announced plans to scale back or cancel operations in the North Sea with significant job losses linked directly to this policy is truly alarming.
“It remains to be seen whether or not this price floor will have any real impact in reversing these decisions and we urge the UK Government to monitor this closely and take further steps, as necessary, to protect the future of the industry.
“The UK oil and gas industry currently supplies 50% of the UK’s demand for fossil fuels – without more investment we would be dependent on imported, carbon heavier oil and gas for 80% of our needs by 2030.
“Imported oil and gas pays no UK taxes and supports no UK jobs so it is economically and environmentally prudent for us to maximise domestic production.
“There is an overwhelmingly strong case to support an industry that will contribute £20billion to the UK’s economy this year alone and has the critical mass in skills, expertise and financial capital required to accelerate energy transition toward meeting net zero targets.”
Ryan Crighton, policy director at Aberdeen & Grampian Chamber of Commerce, said the price floor was unlikely to ever be triggered, rendering the UK Government’s announcement on Friday “pointless”.
He said: “For over a year, we have been calling for a price floor on the windfall tax to ensure that it did not skewer jobs and investment in the North Sea.
“So the introduction of a trigger on Friday should have been good news. But, as ever, the devil is in the detail.
“Both oil and gas prices have to fall below their respective long-term prices — of $71.40 a barrel for oil, and 54p/therm (equivalent to $40.70/barrel) for gas — for two consecutive quarters. With UK gas prices expected to remain far above their floor, oil-producing companies could get stuck paying the higher levy even if the oil price drops.
“So, basically, it will never be triggered.
“The Chancellor needs to work with the industry to get this right, because billions of pounds worth of investment and thousands of new jobs could be created in the North Sea in the right conditions.
“The alternative is a levy which risks accelerating the decline of our oil and gas sector at a pace which jeopardises the skills and investment required to deliver the UK’s net zero plans.”
