North Sea oil giant demands windfall tax overhaul after £63m hit
North Sea oil company EnQuest is demanding an overhaul of Jeremy Hunt’s windfall tax after claiming it has been hit by an effective rate equal to 113pc of profits.
The company suffered a £25m loss last year after paying taxes of £63m, according to its annual results.
EnQuest was also hit by other corporation taxes, landing it with a total bill of £207m.
The results are another sign of the damaging impact the windfall tax is having on the UK’s oil and gas operators. Fellow drilling companies such as Harbour Energy have already vowed to halt investment in the North Sea.
A spokesman for Enquest said: “We believe legislative reform is required to restore confidence in the UK oil and gas sector to protect jobs and deliver energy security and decarbonisation.”
The windfall levy was introduced in 2022 when the Russian invasion of Ukraine triggered surging global energy prices, handing massive profits to oil and gas operators. It meant oil and gas operators faced a nominal taxation rate of 75pc.
However, the tax is ring-fenced, meaning it applies only to the profits from oil and gas extraction. It does not take account of the costs companies may incur in other operations – meaning some can face overall taxation rates in excess of 100pc.
Enquest operates platforms around Scotland including Magnus, the most remote in UK waters more than 100 miles north of Shetland.
The company also operates several key pipelines and other subsea assets that carry oil and gas from offshore platforms to onshore processing facilities such as Sullom Voe in Shetland – meaning its assets are strategically vital to the UK’s energy security.
This gives Enquest a crucial role in the UK’s carbon capture and storage plans, in which CO2 would be pumped deep into subsea rocks for permanent storage. The business has been awarded four carbon capture licences by the UK.
Amjad Bseisu, chief executive, said the company delivered strong performance and reduced net debt “against the backdrop of a challenging UK fiscal environment”.
Sullom Voe, he said, was increasingly focusing on low carbon technologies with facilities that will eventually allow it to take CO2 shipments from power stations and factories in Europe and then pump it into subsea rocks for permanent storage.
EnQuest’s report added: “As expected, the windfall levy has impacted access to capital across the sector, with the most significant on EnQuest being the reduced borrowing base within the group’s reserve bank lending facility.
“Clearly, a volatile fiscal regime imposes significant challenges on any business and the extension of the levy to 2029 announced in the spring Budget represented the fourth amendment to UK sector taxation in the last two years.”
EnQuest’s criticism of the windfall tax echoes similar comments from Harbour Energy and other offshore firms.
Last month Linda Cook, Harbour’s chief executive, said a pioneering net zero project was at risk of becoming uneconomic because of the levy.
Harbour is the lead partner in Viking, a project to create a transport and storage network in the Humber that will store 10m tonnes of CO2 a year by 2030.
The company, which is the biggest oil and gas producer in British waters, faced an effective tax rate of 95pc as the UK’s windfall levy took $565m (£443m) out of its 2023 earnings – leaving a profit of just $32m.
Ms Cooks said: “If we’re going to invest, our messaging is around the windfall levy where we continue to make the point to the Government that we need a stable and fair and attractive fiscal environment.”
