TOTALENERGIES has become the first major oil and gas operator to announce it is cutting spending as a direct result of the UK Government’s increased cash grab.
The head of the French group’s North Sea business said yesterday that it will slash investment by a quarter next year – a £100million fall.
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UK Chancellor Jeremy Hunt targeted offshore producers in last month’s Budget, leading to fears that new projects in British waters could be delayed or even cancelled.
Pressure is mounting on him for a rethink on the severity of his tax plans.
He is hiking the energy profits levy (EPL) by another 10% to 35% – bringing the overall tax rate from January to an eye-watering 75%.
The chancellor has also extended the lifespan of the EPL until March 2028 from the previous date at the end of 2025.
The EPL is now expected to raise a total of £40billion – double the previous figure of £20billion. The total tax take from producers operators in British waters in the next six years will hit a staggering £80billion.
Tory MPs have already warned the chancellor that the windfall levy must be watered down to avoid industry collapse.
He has been told that the EPL is “too blunt an instrument” in its current form and risks “destroying” North Sea production altogether.
MPs believe that unless a “sensible” price floor is agreed – where there would be a reduction in the level of the EPL if energy prices dipped substantially – producers will be “crippled” with higher taxes even when their profits fall.
TotalEnergies UK country chairman Jean-Luc Guiziou told Energy Voice yesterday that the lack of a price floor was particularly concerning.
“Following another change to the fiscal environment for energy investors in the UK, we are now evaluating the impact of this change on our current and planned projects. We note that, without a price floor to the EPL, the current regime will affect short-cycle investments, in particular infill wells,” he said.
“For 2023 alone, our investments will be cut by 25%.”
TotalEnergies had committed an annual average of around £500million into its gas assets over the last four years, the executive said earlier this year, and described the UK as one of the “key countries for development of our company strategy”.
Mr Guiziou reiterated this week that a competitive and stable fiscal and regulatory regime is “vital to investment in critical energy and infrastructure projects” that will help meet the UK’s energy-security needs and net-zero ambitions.
“The energy industry operates in a cyclical market and is subject to volatile commodity prices. We believe that the government should remain open to reviewing the EPL if prices reduce before 2028,” he continued.
Deirdre Michie, chief executive of industry body Offshore Energies UK, said last night that the 75% tax rate is undermining investor confidence in the North Sea basin.
She added: “Our industry was planning to invest £200billion in the broader energy sector – this includes low-carbon solutions – by 2030. This would help to ensure that the UK can meet its net-zero and climate goals and boost its energy security while we make that low-carbon transition.
“But these tax changes really do jeopardise this and the onus is now on government to help build back investor confidence if we are to sustain these opportunities moving forward.”
Shell has already confirmed it is reviewing plans to invest up to £25billion in Britain’s energy system after the UK Government’s latest multi-billion-pound tax raid.
David Bunch, Shell’s UK chairman, said that the company is now re-examining a slew of projects in the pipeline, from North Sea investments to renewable energy schemes.
