Britain’s unstable tax regime will push us to Norway, says North Sea oil boss
One of the North Sea’s biggest gas producers is threatening to end investment in Britain because the tax regime has become too unstable to support offshore energy producers.
Serica Energy, which produces 5pc of the UK’s gas supply and around 600,000 barrels of oil a day, is preparing to shift future investment to Norway instead.
David Latin, the company’s chairman, said the UK was the worst place in the world to operate as a drilling business after successive raids by politicians pushed taxes on oil and gas profits from 40pc to 78pc in three years.
Rachel Reeves, with her first budget looming, backed by energy secretary Ed Miliband, is threatening to raise taxes even higher.
It means Serica is cutting its losses and casting its eyes northwards to Norway.
“The UK is now fiscally more unstable than almost anywhere else on the planet,” said Mr Latin.
“That means we are looking for new places to invest our money. And Norway is a place where potentially we could recreate our business model.”
Serica’s approach has proved one of the most successful in the North Sea. Put simply, it buys up older and apparently declining oil and gas fields from the biggest players such as BP and then breathes new life into them.
Formed 20 years ago, it staged a takeover of rival Tailwind Energy in 2022 and has also taken a 30pc interest in Buchan – widely regarded as one of the UK’s best remaining untapped oil fields.
It means Serica now has 11 oil and gas fields, the output of which make it one of the UK’s top 10 producers.
Last year Serica fed 65bn cubic feet of gas into the UK’s gas pipes, and produced 5m barrels of oil, according to data from the North Sea Transition Authority (NSTA).
It and its many rivals should be perfectly placed to exploit the 9bn barrels-worth of oil and gas lying in known North Sea fields and perhaps 15bn more in unmapped areas.
However UK politics means Serica would struggle to take on such challenges, Mr Latin said. “The consequences of being a purely British-based company are horrific at the moment,” he said.
“Just look at what happened on the day that the Labour manifesto was announced. There was hardly any impact on the share price of the oil and gas giants because their profits are made abroad.
“But for small UK-based companies like ours the downward share price movement was really substantial.”
Serica’s share price fell 11pc on the day of Labour’s launch, confirming that it would hit oil and gas companies with an extra 3pc in windfall levies and remove their investment allowances.. Others suffered more – rival Deltic Energy lost 19pc of its share value.
A road paved with pragmatism’
Over the longer term Serica’s shares have fallen from £4.50 in August 2022 to around £1.34 now – driven partly by falling energy prices but mostly by politicians, Mr Latin said.
His key point is that energy politics and the tax policies advanced by both main parties, but now especially by Labour, are based on an ideological dislike of fossil fuels – but take little account of the country’s long-term needs or the jobs destroyed on the way.
“It’s okay to be driven by ideology – the aspiration for a greener, cleaner Britain is a good one. But you need to have a road that’s paved in pragmatism to get there – and that means protecting jobs and energy supplies,” he said.
“If we follow a purely ideological path with no pragmatism, we will destroy an estimated 100,000 jobs – roughly half the industry – and undermine our own energy supplies.”
The UK gets 77pc of its total energy from oil and gas, a level that has remained roughly constant for over a decade.
Last year the nation used 76bn cubic metres of gas, with 40pc used to generate electricity and much of the rest powering the boilers that heat 25m UK homes.
The UK also consumes 60m tonnes of oil – nearly a tonne per person – mostly to fuel our 32m petrol and diesel vehicles.
Mr Latin suggested that few politicians have a proper grasp of how the UK’s energy systems work.
“The reality is that it’s quite hard, right?” he said.
“They’re not in those jobs for long. They have to absorb huge amounts of information.”
The latest government energy statistics are stark. They show that the UK’s own energy production, including oil, gas and electricity fell by 8.3pc to a record low in 2023, meaning imports hit a record high.
“The UK’s net import dependency stood at 40.8pc, up from 37pc in 2022,” said the latest government report.
Mr Latin believes that reliance will accelerate if his and other companies are forced overseas.
“We’re looking at every possible deal in Norway and elsewhere in the North Sea,” he said.
“So we’ve looked at some of the other North Sea bordering countries. But Norway is a place where potentially we could recreate our business model.
“So we would like to establish ourselves in Norway, but if we can’t find the right thing in Norway, we’ll look somewhere else too, and we might have to look further afield in due course.”
‘Out of business overnight’
Serica and Mr Latin are unusual in their willingness to speak out.
Most North Sea oil and gas operators have kept quiet through successive tax rises, partly because they fear undermining their share prices but mostly because of a hope that lobbying in private will be more effective, despite little evidence so far that it is working.
Robin Allan, chairman of Brindex (the Association of British Independent Exploration Companies), said UK oil and gas production was set to halve by 2030, with gas output down 70-80pc.
““The yo-yoing of UK oil and gas policy and the fiscal regime has been very damaging to the sector and has severely weakened investor confidence. It means imports will have to increase by 58pc by 2030,” he said.
It seems unlikely such warnings will be heeded.
Last week James Murray, a junior Treasury minister, visited Aberdeen to hold a “fiscal forum” with UK oil and gas industry executives. As ever the industry’s hopes of a policy change were dashed with Mr Murray making clear the windfall tax and other levies were here to stay.
“We are extending and increasing the Energy Profits Levy and closing its core investment allowance to ensure oil and gas companies contribute more towards our clean energy transition,” said a Treasury spokesperson.
For Serica, which supports around 1,000 UK jobs, that means the future will be very different.
“Our offshore staff are really worried,” said Mr Latin. “We’re not just in Aberdeen, we’re in Harrogate, we’re in Teesside, we’re in Northumberland, we’re in Liverpool. They’re scattered across the UK, and they’re really worried about their families, their communities, their incomes.
“They recognize, as we do, that the energy transition is important and has to happen – but it won’t take place overnight. But what can happen overnight is this industry can be put out of business pretty damn quick.”
Published: 19-08-2024
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