Enquest has joined industry calls for a windfall tax price floor, putting further pressure on the government to reform the Energy Profits Levy, after revealing net losses of £33m.
Amjad Bseisu, chief executive of the North Sea oil and gas operator told City A.M. that a price floor was key for companies taking on new projects.
This is because it would both ensure companies only faced windfall taxes during periods of high oil prices, and would ease pressure from banks on projects – which typically offered reserve-based lending with a lower valuation for project resources than the market rates for oil.
He said: “We’re very supportive of the floor. We continue to be. Banks use a much lower price than the market price. This means a floor is very important to establish credit and financing for businesses.”
The EPL, which was introduced last year, is a 35 per cent tax on profits to help fund support packages for businesses and households grappling with record energy bills.
In his view, reforming the EPL was essential for “encouraging investment” and called on the government to commit to “competitive taxes on a worldwide basis to encourage investment.”
Bseisu considered to be $60-$70 per barrel to be a fair level for any price floor in the windfall tax, which City A.M. understands has not been clarified in Treasury proposals beyond “normal levels.”
“If you look at the prices over the last 10 years, it’s that set range in terms of an average,” he said.
Ithaca Energy executive chairman Gilad Myerson suggested a similar level when speaking to City A.M. earlier this week.
He said: “I would be supportive of just taking the average over the last 10 years for instance, or the last five years. Define a time period and use it to define normal prices.”
Enquest confirms Kraken field faces ‘natural decline’ after windfall tax hit
Bseisu’s comments follow Enquest unveiling its full-year results, where it confirmed it is deferring drilling on its Kraken field in the North Sea, which it now plans to leave for “natural decline.”
It previously announced plans to delay further developments on the project, but has now opted against tapping into the remaining 33m barrels of resources available.
This was “primarily driven” by the £142.8m tax liability Enquest associates with EPL in its results.
Overall, the company reported gross profits of £522.7m, which was transformed to a £33m loss after taxes.
However, Enquest did also outline benefits to its “significant tax loss position” – on which it can claim rebates.
It argued the loss “provides Enquest with a strategic advantage in the UK North Sea, enhancing the relative value of assets in Enquest’s hands when compared to other tax paying participants”.
Enquest also announced that free cash flow had jumped 31 per cent over 2022 to £415.6m on the back of higher oil and gas prices.
Despite its warnings over the price floor, Enquest is expected to remain active with £128.3m of investments domestically in 2023.
The company has applied for two carbon capture and storage (CCS) licences from the industry regulator’s licensing round.
It is also assessing onshore wind and a new power solution for its Sullom Voe oil complex, and exploring green hydrogen via wind around Shetland, with the ambition of producing around one million tonnes annually.
The Government was approached for comment.