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Executives in Aberdeen said the Budget contributed to growing doubts about the economic viability of the North Sea \u00a9 Jeremy Sutton-Hibbert<\/p>\nAbout \u00a315bn of potential investment in North Sea oil and gas production is at \u201cvery high risk\u201d of being cancelled after the UK government decided to retain windfall taxes in the sector, analysts have warned.\u00a0<\/p>\n
Chancellor Rachel Reeves disappointed executives by keeping the 78 per cent headline tax rate until 2030, leaving many considering whether to focus on opportunities elsewhere.<\/p>\n
\u201cThe Budget has provided certainty \u2014 companies now have a decision to make,\u201d said Gail Anderson, research director at Wood Mackenzie, which estimated the figure in a report last week. Wood Mackenzie said that along with \u201cfalling prices and increasing global competition for upstream investment\u201d, retaining the energy profits levy could wipe out non-essential UK investment. <\/p>\n
Harbour Energy, the UK\u2019s largest producer in the North Sea, on Monday said it would cut 100 of its roughly 700 offshore workforce. This brings the overall number of job losses at Harbour to 700 since 2023. <\/p>\n
Scott Barr, managing director of Harbour\u2019s UK business, said keeping the profits levy meant the company would \u201cstruggle to compete for capital within our global portfolio\u201d.<\/p>\n
As well as its decision to retain the headline 78 per cent tax rate in place until 2030 at the latest, the government said it would push ahead with its plan to ban new oil and gas exploration licences. <\/p>\n
It added that new drilling in fields connected to existing pipes and rigs would be allowed, prompting a slight increase in 2029 production estimates from the North Sea Transition Authority, the industry regulator.\u00a0\u00a0<\/p>\n
However, several executives argued that taxes still needed to be lowered. <\/p>\n
\u201cThis is like saying, you can buy this house, but the interest rate will be 30 per cent,\u201d said one Aberdeen-based executive. \u201cNone of this matters if investors\u2019 confidence is shot.\u201d<\/p>\n
David Whitehouse, chief executive of Offshore Energies UK, the trade group, added: \u201cThe fundamental issue is that the UK continental shelf is not attracting investment \u2014 and the fundamental issue is the windfall tax.\u201d<\/p>\n
Executives in Aberdeen said the Budget contributed to growing doubts about the economic viability of the North Sea \u00a9 Jeremy Sutton-Hibbert<\/p>\n
Not all companies greeted the Budget with such gloom: Serica Energy, one of the North Sea\u2019s largest gas producers, said while the Budget was a \u201cmissed opportunity\u201d to unleash investment, it had delivered \u201cgreater clarity\u201d and the company had \u201cmultiple, and material, organic growth options\u201d. <\/p>\n
However, executives in Aberdeen said the Budget contributed to growing doubts about the economic viability of the North Sea under the UK government\u2019s regulatory and fiscal regimes.<\/p>\n
The North Sea has helped fuel Britain for decades and filled the government\u2019s coffers with tax receipts, but is well past its heyday. <\/p>\n
Production of oil and gas is at its lowest levels since the 1970s, while direct jobs have fallen about a third over the past decade.\u00a0 <\/p>\n
NSTA estimates production will fall about 54 per cent between 2021 and 2030, to 33.42mn tonnes of oil equivalent.\u00a0The UK\u2019s National Energy System Operator warned last week about the prospect of gas shortages in the 2030s. <\/p>\n
The government, which says the basin is in \u201cnatural decline\u201d, wants to shift rapidly towards lower-carbon energy, which it argues is more secure as it is less exposed to international markets.\u00a0<\/p>\n
But many in industry argue the North Sea\u2019s decline is being accelerated by government policy and that the UK should not be strangling its own production.<\/p>\n
Oil and gas still supply about 75 per cent of Britain\u2019s total energy, despite government efforts to develop more wind farms and push people towards electric cars and heat pumps.\u00a0<\/p>\n
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John Swinney, Scotland\u2019s first minister, warned there would be job losses in north-east Scotland \u00a9 Jane Barlow\/PA Wire<\/p>\n
John Swinney, Scotland\u2019s first minister, warned of the \u201cdeeply damaging\u201d prospects for employment and sought to blame the leader of Scottish Labour, Anas Sarwar, for the decisions made in the Budget.\u00a0<\/p>\n
\u201cThere are going to be job losses in north-east Scotland that Anas Sarwar is going to be responsible for,\u201d he said, speaking at first minister\u2019s questions last week.<\/p>\n
Reeves and her team considered bringing forward the end of the levy <\/a>by one year but sought assurances from the industry that the move would unlock extra investment.<\/p>\n However, in the end the chancellor concluded the move would not be a \u201cnet positive\u201d for the exchequer. One person briefed on the discussions said: \u201cThey made the case but we ended up not doing it.\u201d<\/p>\n Speaking after the Budget, Sarwar said he had argued for a balanced approach in the North Sea, but that Reeves had prioritised ending the two-child benefit cap, in the hope of lifting 450,000 children across the UK out of poverty.\u00a0<\/p>\n \u201cIf others want to suggest that oil and gas giants should get a tax cut and not put money into reducing energy bills and child poverty \u2014 that\u2019s a real hard argument to make,\u201d he told reporters in Holyrood. <\/p>\n
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