Norway's state-owned company has reportedly threatened to pull funding of a new £4.5bn oil project off the coast of Scotland due to the UK's government's windfall tax.
Equinor, a US$100bn Norwegian energy giant, revealed it is reconsidering its plans to drill for oil and gas in the Rosebank field near the Shetlands and reportedly wants the government to modify its so-called Energy Profits Levy before making the investment.
An additional 25% levy on profits is imposed by the UK government's windfall tax announced in May
Oil and gas companies, whose profits have soared after spiralling energy prices, are set to pay a one-off levy of around £5bn and the funds raised are to help families struggling with the cost of living crisis.
Though Equinor referred to the report as "speculation", trade association Offshore Energies UK has also warned the new windfall tax could be undermining big investments.
Shell PLC (LSE:SHEL, NYSE:SHEL) reportedly told analysts it is also less likely to develop the £2bn Cambo project in the North Sea after the additional 25% tax on profits of energy companies becomes law.
Equinor's threat could result in a postponement or a slower tempo in the project's development, rather than its abandonment, industry sources told the media.
Though Chancellor Rishi Sunak believes it is appropriate for the government to tax energy companies' "extraordinary" profits due to rising prices, the idea continues to irk cabinet members, with business secretary Kwasi Kwarteng writing to Sunak last week about his concerns regarding investment risks in the North Sea as a result of the tax, as well as lack of consultation with the industry.
Moreover, the threat of extending the windfall tax has major investors deliberating whether to cut funding for green energy projects too, says Alistair Phillips-Davies, chief executive of SSE, adding the tax could hamper efforts to build large-scale green energy projects that would wean Britain off imported natural gas.