Sunak praises North Sea oil and gas industry despite imposing windfall tax

Rishi Sunak has reaffirmed his support for the North Sea oil and gas industry, labelling it “the foundation of the UK’s energy supply in the decades to come.”

The Chancellor will hold peace talks with key fossil fuel traders in Aberdeen tomorrow, following his decision last month to impose a hefty 25 per cent additional levy on North Sea oil and gas operators to help tame rising household energy bills.

It is expected to raise a further £5bn this year – on top of the £7.8bn the Office for Budget Responsibility has estimated from the North Sea industry’s special 40 per cent corporation tax rate.

He will also host a roundtable, including representatives from a range of oil and gas companies, to discuss key issues and to listen to their concerns

The Energy Profits Levy is part of a ‘carrot and stick’ approach from The Treasury, with the eye-watering tariff offset by an investment allowance that could allow firms to regain 91p from every pound they invest in the UK.

Energy giants BP and Shell have committed £18bn and £25bn respectively to energy generation projects over the coming decade, following record underlying profits in the first quarter of trading this year.

Sunak said: “It’s vital we encourage continued investment by the oil and gas industry in the North Sea and our new investment allowance provides huge tax reliefs for projects that cut emissions.

“I look forward to hearing about the projects Scottish industry have planned as they continue to lead the charge to Net Zero with new innovations and investment.”

North Sea oil and gas exploration is a key feature in the UK’s supply security strategy – with the Government reaffirming the value of the sector to meeting the country’s energy demands over the coming decades and transitioning to net zero.

However, the windfall tax has caused consternation across the North Sea oil and gas sector, with both BP and Shell warning the new tax creates uncertainty in the UK’s investment environment.

Offshore Energies UK told City A.M. fiscal stability is a “key factor for companies considering new investments” and that companies operate on the understanding that years of strong revenues will compensate for periods of economic downturn.

Market intelligence manager Ross Dornan said: “Exploring and drilling for new oil and gas resources is very expensive and very risky – because you may find nothing worth exploiting. If you add extra risk into that process, such as the threat of sudden changes in the tax regime or in the environmental regulations, then it can make a project unviable.”