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North Sea Oil Producers Urge Labour’s Starmer for Tax Clarity

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July 5, 2024

LONDON, July 5 (Reuters) – North Sea oil and gas producers urged Britain’s incoming Prime Minister Keir Starmer to provide clarity on his election promise to increase tax on the sector, warning it could lead to a rapid decline in output and revenue.

Starmer’s Labour Party swept to power in a parliamentary election on Thursday, ending 14 years of Conservative government.

The party’s manifesto promised to rapidly build up Britain’s renewable power, partly by increasing taxes on its oil and gas sector. It also vowed to end issuing new licenses in the North Sea basin.

David Whitehouse, Chief Executive of industry body Offshore Energies UK, said the sector and investors were deeply concerned over Labour’s plans.

“These policies, if poorly managed, and without industry input, will threaten jobs and undermine the decarbonisation of the UK economy. The details matter,” Whitehouse said in a statement.

Labour said it will increase by 3 percentage points a windfall tax on energy producers first imposed in 2022 after energy prices spiked following Russia’s invasion of Ukraine.

The current 35% windfall tax, which will run until 2029, brings the total tax burden on producers to 75%, among the highest in the world.

Labour also vowed to scrap the so-called investment allowance, which exempts most profits that are re-invested in oil and gas production, but provided little detail.

David Latin, Chairman of producer Serica Energy SQZ.L, said that without clarity, investments and taxes from the sector would drop rapidly.

“There’s this misunderstanding which is that somehow we’re a golden goose and we’ll just keep laying eggs. But if you don’t feed the goose with investment dollars, it’ll keel over and there’ll be no more eggs,” Latin told Reuters.

The windfall levy wiped out most profits for producers last year and many, including Harbour Energy HBR.L, the basin’s largest producer, pared back investments and cut hundreds of jobs. Many of the producers are now looking to acquire assets beyond the North Sea.

Gilad Myerson, former executive chairman of Ithaca Energy ITH.L, said Labour must choose between producing oil and gas locally or importing fuel.

“The policies that Labour have suggested in their Manifesto will simply decimate the local industry and local production,” Myerson told Reuters.

“My only hope is that now they are in power they will revisit their energy policies and focus on making economically correct decisions.”

(c) Copyright Thomson Reuters 2024.

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