North Sea oil stocks shot up in reaction to the new UK budget which, despite an expected raise in headline tax rates, turned out to be less bad than previously feared.
Jersey Oil and Gas PLC (AIM:JOG, OTC:JYOGF) shares rocketed as much as 60% immediately after the budget announcements, and still stood some 35% higher at 76p per share some time later.
For JOG, the picture is more nuanced – as its Buchan project faced recent friction due to the government’s plan for a consultation on new environmental guidance for oil and gas firms, which led to the firm’s partner slowing investment.
Elsewhere, meanwhile, Deltic Energy PLC (AIM:DELT) shares jumped nearly 20% as the explorer that’s partnered with Shell in the Selene well (currently being drilled) traded up to 7.99p.
Growing North Sea operator Serica Energy PLC (AIM:SQZ) moved up 10% to 142p, whilst Enquest PLC (AIM:ENQ) shares climbed 6.5% to 11.87p.
Harbour Energy PLC (LSE:HBR) and Ithaca Energy PLC (LSE:ITH), two of the North Sea’s largest ‘independent’ producers each rallied between 2.5% and 2.8% to change hands at 271.5p and 105p respectively.
As is the case, often, with budget announcements the devil-in-the-detail will take a while to shake out once the analysts and accountants run the rule over the finer details.
Nonetheless, aspects of Rachel Reeves announcements were “better than feared” for oil and gas firms and the market has reacted accordingly.
The Chancellor of the Exchequer increased the Energy Levy (aka the ‘windfall’ tax) on the UK’s domestic oil and gas industry to 38% from 35%, taking the effective tax rate to 78%.
It makes Britain one of the most taxed places in the world to produce hydrocarbons.
She also extended the lifespan of the levy out to March 2030, adding a year, and withdrew the prior ‘investment allowance’ which enabled oil and gas firms relief of 29%.
Reeves did, however, retain the “Decarbonisation Investment Allowance” which allows an 80% relief related to qualifying investment.
Whilst complicated and somewhat counter-intuitive on paper, it basically means that companies actively investing in UK projects may have more shelter than feared immediately prior to today announcements, albeit only on certain qualifying investments.
A much deeper analysis will no doubt follow, with focus on what these changes do or don’t mean for the medium and small-cap firms in the North Sea.
In the run-up to today’s Budget many small caps had begun efforts to seek diversification opportunities abroad. It is likely that upcoming investor communication from these firms will now begin to shed more light on their plans.