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Sunak Stands Firm on UK Oil Windfall Tax
by Bloomberg|Laura Hurst|Friday, June 24, 2022

UK Chancellor of the Exchequer Rishi Sunak remained committed to his windfall tax on oil and gas profits despite protests from industry executives during their first meeting since the announcement.

Sunak, who said last month he would impose the 25% levy, told them the tax would be temporary and is a vital way to support households facing a surge in the cost of living, according to a statement from the Treasury.

The discussion with about 20 oil and gas business leaders, which took place in Aberdeen, Scotland on Thursday was “candid and constructive,” according to Offshore Energies UK. But the industry group reiterated that the tax would hit investor confidence in the country.

“The Energy Profits Levy is an unexpected new tax that changes the basis for investments,” OEUK Chief Executive Deirdre Michie said in a statement after the meeting. “Our industry leaders were clear about their concerns.”

The fossil-fuel industry’s profits have swelled this year on the back of a rebound in demand and soaring energy prices due to the supply disruption caused by Russia’s invasion of Ukraine. These bumper earnings sat uncomfortably alongside the UK’s highest inflation in decades and rising utility bills.

Representatives of oil majors BP Plc, Shell Plc, TotalEnergies SE and Equinor ASA attended the meeting, as did independent producers such as Harbour Energy Plc, Neptune Energy Group Ltd. and Serica Energy Plc, according to people familiar with the matter. The talks come just five days before the public consultation on the proposed tax is due to close.

“We welcome the consultation on the draft bill,” Andy Samuel, chief executive of the North Sea Transition Authority, said in a statement. “It is crucial to get it right and more broadly to restore investor confidence and support important projects including clean power for offshore installations.”

Attendees described the meeting as tense, with company leaders criticizing many aspects of the windfall tax, the people said. A subsequent meeting with more junior members of the companies was more relaxed. Sunak rolled up his sleeves and answered questions from staff as he held a mug with Scotland’s flag on it.

OEUK has said that the windfall tax will crimp spending in the North Sea. When the levy was announced, BP said it would review an £18 billion investment plan in the UK as a result. The UK’s largest oil and gas producer, Harbour, recently wrote to Sunak asking him to rethink the levy because it would disproportionately affect smaller firms instead of majors such as BP and Shell.

At the meeting, the larger firms said the levy made it more difficult to allocate capital to the UK, the people said. Shell’s North Sea boss said the measure sent a negative signal, while an Equinor executive said it made the country less attractive. BP’s head of North Sea finance attended the meeting but didn’t ask any questions, the people said.

Shell declined to comment. An Equinor spokesman reiterated that the company was committed to developing its Rosebank project in the UK and that it was aligned with OEUK’s position on the levy. BP declined to comment.

Independent producers such as Harbour said that they had not benefited from surging energy prices as much of their output is hedged, according to people with knowledge of the matter. A representative for Harbour declined to comment.

The industry and Sunak have committed to further discussions on the levy, OEUK said.

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