The windfall tax debate

The oil and gas industry has long rallied against the windfall tax with arguments that it believes to be convincing.

However, politicians take a very different perspective on arguments that oil firms consider sound, former Wood chief executive Bob Keiller told the OEUK Conference in Aberdeen.

Delivering a speech before the second panel session at the trade body, Offshore Energies UK’s (OEUK), event at the P&J Live, Keiller spoke about the importance of understanding different perspectives in a debate.

“It seems so logical because clearly the uptick in activity would increase tax revenue for the government and certainly improve our energy security and goodness knows in the current world energy security is going to be more important than ever,” Keiller said.

“It would drop our carbon footprint at the same time, and it would retain all the skills, and you think, yeah, that seems so logical.”

© Supplied by Michal Wachucik

These are all common arguments made by the oil and gas sector in the UK as it campaigned to remove the Energy Profits Levy (EPL), or windfall tax, which brings the rate of tax imposed on operators to 78%.

Keiller continued: “If you put yourself in the place of somebody who’s perhaps a sceptic politician looking at this, they say ‘Yeah Bob, it’s logical. However, if you remove the windfall tax, in the short term, revenue from the Treasury would drop, wouldn’t it?’”

He added that, to a sceptic, there is “no guarantee” that firms would invest in the energy transition.

“Before we put the EPL in place, oil companies were buying back shares and giving out dividends and complaining about having too much money,” he said.

He also pointed out that some would say increased North Sea drilling would result in “a marginal increase in energy security” as the UK is only capable of covering half of its hydrocarbon demand, even if it does unlock every available barrel.

And in addition to seeing a “sliver of CO2 reduction,” politicians could argue that “we’d be seen as giving in to big oil,” Keiller continued to explain.

The former Wood boss’ point was that when industry engages in debate, it must attempt to understand the other side’s perspective and why they may oppose points that it thinks are logical.

The big debate

© Supplied by Michal Wachucik

The former Wood boss wasn’t the only person to draw attention to the UK’s fiscal climate as the chief executive of independent North Sea operator Serica Energy, Chris Cox, questioned why firms haven’t done more since last year’s Autumn Budget.

Then, Labour unveiled its first budget since taking office, and it removed the investment allowances previously afforded to oil firms under the windfall tax while hiking the rate paid by 3%.

However, after a joint message from trade bodies, unions, operators and suppliers, the capital allowance model was retained under the EPL.

Cox commented: “We all begged the government to keep the capital allowances last year because investment would disappear if we didn’t have those capital allowances.

“We still have them; I think operators need to pony up and do their bit and spend a little bit more capital.”

This year, Serica Energy completed a five well campaign on its Triton field and the firm has said it forecasts further drilling over the next two years.

Windfall tax

Despite an understanding of anti-oil and gas policy, there was still some pushback on the EPL and its negative impacts on the energy sector in the UK.

Andy Barr, regional director of subsea and surface pressure systems for Europe and Caspian at Baker Hughes, argued that despite the positive moves the UK government is making to incentivise green projects doing business with domestic suppliers, the windfall tax might “undermine” that.

“The EPL in particular has had a damaging consequence for the UK’s supply chain, while many of the new governments initiatives are expected to be positive, their potential benefits risk being undermined by the EPL if it continues in its current form,” Barr said.

The industry awaits the results of a consultation with the treasury, which is set to decide the fiscal policy that will be delivered after the windfall tax concludes.

However, the changes will not be delivered until the start of the next decade as the windfall tax will remain in place until 2030, under current policy.

© Supplied by Michal Wachucik

Despite this, Barr said that he is still “cautiously optimistic” about the energy transition.

Barr added: “With this steady flow of announcements, I am becoming – I should maybe whisper here – cautiously optimistic that a somewhat more favourable policy environment for our industry is slowly emerging.”

OEUK’s supply chain and people director, Katy Heidenreich, said that industry should remind government of what it has in terms of expertise and experience in the energy sector, even if it plans not to use it.

“We can’t always get what we want, but it’s important that we listen and that we make sure that government understands what we really, really want,” Heidenreich commented.

This came hours after protestors dispersed from the P&J Live after accusing the event of lobbying for oil and gas over the transition.

Heidenreich also pointed to a lack of “good debate” in the UK around the energy transition. She drew attention to OEUK’s recent series of debates that it held across the country this year.

Heidenreich commented: “It’s been a long time since I’ve been able to be in a room and have a really good debate about sensible choices, being made clear on where we get our energy from and what choices we each have to make.”

It is unlikely that the comments for or against the windfall tax made at the OEUK Conference will change the perspective of the industry; however, debate must be had to effectively deliver the best energy transition for workers, energy security, and the planet.