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Oil and gas companies in the UK’s North Sea are no longer earning “windfall” profits and their tax rates should be revised with crude prices now almost half of their 2022 peak, one of the largest operators has said.
Companies are paying a 38 per cent “energy profits levy” (EPL) that was introduced as oil prices surged to $128 a barrel in the wake of Russia’s invasion of Ukraine three years ago. It is due to run until 2030 and the government has been consulting the sector over the long-term future tax regime for the North Sea after that.
“Right now the EPL is anything but a windfall tax, we are far away from the windfall of 2022,” said Yaniv Friedman, chair of Ithaca Energy, as he unveiled the company’s half-year results.
Ithaca expects to pay between $270mn and $300mn in taxes this year, up from its previous guidance of $235mn to $265mn, as its production and size increase, even though oil prices are expected to fall towards the end of the year.
The EPL automatically expires if oil prices fall below $71.40 a barrel and gas prices drop beneath 54p a therm for six consecutive months.
While oil has traded below that level since April, with the exception of during the brief Iran-Israel war in June, gas prices remain well above the threshold and are unlikely to fall beneath it in the near term.
Benchmark Brent crude was trading at just under $67 a barrel on Wednesday, while UK gas prices were 77p a therm.
Friedman is the latest executive to speak out against the levy, which the sector has argued is a threat to the UK’s energy security and a deterrent to investment.
“Ideally, we think it [the windfall tax] should go away,” he said. “Being realistic, the government could do a lot to improve the mechanism.”
He suggested decoupling the requirement for a fall in both oil and gas prices, and a change to the threshold levels.
“There’s a limit to how much you can put on an industry that is critical,” he said, as he called for clarity about the future tax regime in the North Sea because “no one will invest in the future” otherwise.
Ithaca, which is majority-owned by Israeli group Delek, made $41mn of net profit in the first half, below a consensus forecast of $111mn, because of lower revenues and impairment charges.
Its shares rose as much as 5.3 per cent as it guided to much stronger production in the second half and said it had cut its operating expenses to just $17.5 a barrel, down from $27.3 a barrel in the same period last year.
The company, which absorbed the North Sea assets of Italian oil major Eni last year, is also developing two of the biggest projects in the region, Rosebank and Cambo. It increased its guidance for Rosebank’s costs in 2025 by roughly $40mn after bringing forward work into this year.
Ithaca also said it had taken advantage of the price increase in June to hedge its prices for a further 9mn barrels of oil and gas, and had almost 39mn barrels hedged by the end of June at an average floor price of between $68 and $69 a barrel for oil.
The government’s energy department has been contacted for comment.