More than £8bn of North Sea energy projects could now be pursued, as energy companies take advantage of a tax break in Rishi Sunak’s windfall levy.
The chancellor's one-off tax on North Sea oil and gas operators was announced late last month, with the aim of raising £5bn to help offset the rising cost of living.
However, it also offers 91p of tax savings for every £1 of investment made by companies, in order to encourage reinvestment their recent record earnings in the UK and build up domestic energy supplies.
Analysis from investment group Shore Capital suggested that the move offers a “powerful incentive for those existing producers who have so far been hesitant to press the button on development-ready discoveries”.
It stated that there are more than £8bn of oilfield projects awaiting a final investment decision in the North Sea, including the Rosebank field, owned by Norway’s Equinor, which lies 80 miles North West of Shetland and could hold more than 300m barrels of recoverable oil.
Other potential projects include Orcadian Energy’s Pilot field and Jersey Oil and Gas’ Buchan Redevelopment project.
Earlier this year, Aberdeen-based Ithaca Energy bought Siccar Point, the owner of the £2bn Cambo field off Shetland, stating that the field was a “huge opportunity” - despite significant opposition from climate activists.
Craig Howie, a lead analyst at Shore Capital, commented: “We certainly believe that, because carried forward losses cannot be used to offset the levy, new capital expenditure could be the only effective means of mitigating the higher tax burden that has now emerged.”
A financial update yesterday from Serica Energy - which produces about 5% of the UK’s gas - stated that it could use the investment incentives to reduce its tax bill.
The company plans to spend £60m in the UK this year, including on the North Eigg development in the North Sea, adding that this “will offset a large element of the energy profits levy that would otherwise be payable on profits this year”.
Speaking in the Commons on Monday, shadow chancellor Rachel Reeves accused the government of using “sleight of hand” to create a “cashback policy”.
The Labour Party - which was among those calling for the windfall tax - claims that a third or more of any revenue from the levy might be handed back in tax breaks.
The Guardian reported that Lucy Frazer, the financial secretary to the Treasury, responded: “We are ensuring that we tax extraordinary profits at the same time as protecting those struggling with the cost of living.”
Last week, climate campaigners promised legal action after the UK Government announced it had given the Jackdaw field - set to be developed by Shell - regulatory approval.
It is estimated that Shell will pay £200m less in windfall tax over the next few years as a result.
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