The new UK oil and gas tax regime unveiled by Rishi Sunak today splits London’s listed oilers into two camps - those investing and those that aren’t.
The winners are the companies with capital and active investment plans which will see a bonus through the near doubling of tax reliefs on new spending.
Some 91p of tax relief will now be available for every £1 of new investment in the UK oil and gas sector under the new regime that at the same time headlined a £5bn a year windfall tax on oil and gas profits.
“The government has been clear that it wants to see the oil and gas sector reinvest its profits to support the economy, jobs, and the UK’s energy security,” it said in a statement.
“That’s why, within the levy, a new ‘super-deduction’ style relief is being introduced to encourage firms to invest in oil and gas extraction in the UK."
Significantly, Sunak’s new Investment Allowance which is tied to the Energy Profits Levy (aka, windfall tax) provides an immediate benefit with the tax saving available from the point of investment rather than the prior scheme where the tax relief kicked-in potentially years later once income is generated from new fields.
AIM-quoted Deltic Energy PLC (AIM:DELT) saw its share price bumped more than 6% higher on Thursday afternoon as investors fancied its prospects under the tax regime – perhaps tellingly, Deltic is partnered with Shell PLC (LSE:SHEL, NYSE:SHEL) in high-potential exploration venture in the North Sea.
Speculative investors will be banking on Shell being more inclined to spend in Deltic’s acreage where the Pensacola well is slated for drilling in the third quarter of this year.
Deltic may also benefit from investments by its other exploration partner Capricorn Energy PLC (LSE:CNE, OTC:CRNZF) (formerly Cairn) in a venture focussed on gas prospects.
Shares in oil majors Shell PLC (LSE:SHEL, NYSE:SHEL) and BP PLC (LSE:BP.) were rallying after Sunak’s announcement, rising 1.26% and 1.55% respectively.
Harbour Energy (LSE:HBR), the UK’s largest independent oil producer, meanwhile saw its shares up 0.51%.
Elsewhere in the market, there were also casualties.
Among them were UK focused oil and gas firms like Hurricane Energy PLC (LSE:HUR), down 1.11%, which barely escaped the Covid-19 crude price collapse intact and has since sought to maximise cash flow and repay debt. Hurricane presently has no active investment plans.
Other oil firms without major reinvestment opportunities in place will be left squeezed by an unshielded rise in tax, to a combined rate of 65% from 40%.
Serica Energy Plc (AIM:SQZ), which last year produced 22,000 barrels a day and made a £386mln gross profit, traded down 14% in Thursday afternoon’s deals to change hands at 269.75p.
Enquest Plc (AIM:ENQ), a North Sea producer of over 40,000 barrels a day, fell 8.5% to 32.25p.