France’s TotalEnergies SE (NYSE:TOT, EPA:TTE), the second-largest operator in the North Sea, has opted to cut investments in the area after the UK government recently increased its windfall tax on oil and gas firms.
Total suggested it would no longer invest around £100mln in its Elgin gas field, east of Aberdeen, marking a 25% decrease in planned spending, according to the industry website Energy Voice.
“Following another change to the fiscal environment for energy investors in the UK, we are now evaluating the impact of this change on our current and planned projects,” said Total’s UK chairman, Jean-Luc Guiziou.
With the Energy Profits Levy increasing to 35% in chancellor Jeremy Hunt’s recent autumn statement, North Sea oil and gas companies face paying 75% of profits in UK tax until 2028.
Significant tax breaks are on offer however, with 91p to each pound invested being reimbursed, suggesting firms are unlikely to see tax payments as high as advertised.
Despite this, concern has still been raised over the levy’s lack of a price guarantee, which sees it stay the same regardless of the wholesale prices of oil and gas, something Shell PLC (LSE:SHEL, NYSE:SHEL) warned could see it reduce investment in North Sea projects.
“We note that without a price floor to the Energy Profits Levy, the current regime will affect short-cycle investments, in particular infill wells,” Total’s Guiziou added.
Meanwhile, Shell’s David Bunch commented in November: “When you tax more you’re going to have less disposable income in your pocket, less to invest,” alongside suggesting the company would have to evaluate each of its North Sea projects “case-by-case”.