Oil and gas executives have expressed concern over Labour’s recent pledge to remove North Sea tax allowances, warning that it could significantly impact investments in the region.
No new wells have been drilled this year as companies await the outcome of the July 4 election and the potential changes to the tax regime.
Labour has announced plans to increase the windfall tax on North Sea oil and gas profits to 78% and eliminate the investment allowances that companies currently use to reduce their tax burden.
These changes are expected to raise billions over five years if fully implemented.
David Latin, chair of Aim-listed Serica, said: “You need to make a return of 15% to 20% to even get out of bed, frankly. Under the new regime they won’t pay back at all. It is not likely you will cover your cost of capital, you won’t get anywhere near it.”
Impacts to the sector have already been felt, with Serica Energy PLC (AIM:SQZ), along with its partners Jersey Oil and Neo, having delayed a decision on the Buchan field until after the election.
David Whitehouse, chief executive of the industry lobby group Offshore Energies UK, said: “Stability and trust are important. We’re seeing a significant reduction in confidence in the sector.
“What that will mean is that fewer projects will move ahead and the removal of the investment allowance and how that plays out will be a further step in that direction.”
While the supermajor companies like BP and Shell have largely exited the North Sea, smaller operators remain active, working to extract the remaining reserves.
Last week, small-cap oil and gas firms operating in the North Sea tumbled after the Labour Party confirmed its plans.
Shares in Serica Energy PLC (AIM:SQZ) dropped 9.5%, Deltic Energy PLC (AIM:DELT) fell 18%, Jersey Oil and Gas PLC (AIM:JOG, OTC:JYOGF) tumbled 19.5% and Ithaca Energy PLC (LSE:ITH) slipped 3%.