EPL relief ‘not enough’ to offset impact on new North Sea project profitability, says economist

EPL relief ‘not enough’ to offset impact on new North Sea project profitability, says economist

November’s changes to the oil and gas windfall tax have had a “significant impact” on the profitability of new projects, analysis has found.

Research carried out by Arturo Regalado of Aberdeen University shows the current incarnation of the energy profits levy results in a lower net present value (NPV) for North Sea schemes.

Crucially, he finds the investment allowance included as a sweetener in the policy is “not enough” to offset the higher tax rate for newer fields.

Going back for more

If the oil and gas sector thought the original incarnation of the energy profits levy (EPL) was bad, and it did, then the UK Government’s doubling down of the policy was even worse.

Announced in May 2022, the first North Sea windfall tax increased the headline rate of tax on North Sea producers by 25%, taking the total levy to 65%.

In a bid not to deter investment in new oil and gas projects, at a time when energy security was top of Westminster’s bill, a spending relief mechanism was included.

It meant firms got £91.25 back for £100 spent on new schemes.

© Jordan Pettitt/PA Wire

Chancellor Jeremy Hunt before speaking to the media at Victoria Place Shopping Centre, Woking. Thursday February 2, 2023.