North Sea oil and gas producers were hoping for an early end to the windfall profits levy to be announced this week, but have had to settle for actual windfall profits coming down the line instead.
The timing of the US attack on Iran and the ensuing energy markets chaos has meant chancellor Rachel Reeves was not able to cancel the higher tax earlier than the 2030 expiry, but the noises coming from the government indicate better times ahead for companies like Serica Energy (SQZ) and Harbour Energy (HBR).
鈥淭he chancellor鈥檚 reported comments indicate to us that global events have merely delayed her plans for the early retirement of the energy profits levy,鈥� said Shore Capital analyst James Hosie.
A meeting between Reeves and executives took place on Wednesday, following Tuesday鈥檚 Spring Statement. 鈥淲e 鈥� think that the efforts now from the chancellor鈥檚 office do seem genuine and we are hopeful to see some progress over here and hopefully in the not-too-distant future,鈥� said Harbour CFO Alexander Kane, who was at the meeting.
鈥淲e remain hopeful and appreciate the constructive dialogue with government who evidently appreciate the security of supply arguments which are now more obvious than ever,鈥� said Serica CFO Martin Copeland after the meeting.
The 38 per cent windfall tax was brought in during public anger at energy companies making outsized profits while electricity and gas bills skyrocketed. Since its 2022 implementation, prices have come down significantly, and the industry has argued it has dissuaded investment because of both uncertainty and its impact on profitability.
The industry has also argued that importing more gas in place of lost North Sea production was worse for the environment, in carbon emission terms.
For now, with European gas prices 52 per cent higher than they were a week ago, the producers will have to cope with higher taxes on the increased profits.
