Enquest has warned the government the current fiscal regime is damaging confidence in the North Sea, and has called for further changes to the windfall tax to encourage investment.
The oil and gas producer has blamed the windfall tax for a swing from profits to losses, and fears that the levy is jeopardising the UK’s investment conditions.
It did not believe the price floor in the Energy Profits Levy would be sufficient to lure investment, and called for fresh legislative changes.
Enquest chief executive, Amjad Bseisu, said: “The UK’s oil and gas sector faces significant challenges and loss of competitiveness due to uncertainty following the adverse changes to the fiscal regime.
“While we appreciate the government’s intentions to improve the attractiveness of the sector through the Energy Security Investment Mechanism, we believe timely legislative reform is required to restore confidence in the UK oil and gas sector to protect jobs and deliver both energy security and decarbonisation.”
This comes as Enquest revealed a sharp drop in revenues and earnings over the first six months of trading this year, driven by lower realised prices for oil and gas and tax charges.
The so-called windfall tax is a 35 per cent levy on top of the 40 per cent special corporation tax rate which North Sea oil and gas producers have had to pay since last year.
Officially called the Energy Profits Levy, it was brought in to harness record profits to pay for support packages for customers dealing with ultra-high energy bills.
However, it is set to remain in place until 2028, even as energy bills ease.
The company has posted a $76m hit from the windfall tax, making up more than half its over $131.8m tax charge, in its latest half-year results.
While this is below the $142.4m in taxes it paid in the first half of 2022, the profits bonanza from soaring oil and gas prices has since eased – putting more pressure on the company to pay up.
Crude oil sales revenue dipped 37 per cent from $851.2m to $540.1m, contributing to a steep fall in profits before tax, which slipped to $112.9m from $182.6m.
It also posted a reported loss after tax of $21.2m, in comparison to profits of $203.5m just 12 months prior.
Free cash flow has also plummeted from $332.1m to $140m, despite the return to service of the Kraken field.
Net debt has dropped 17.4 per cent from $717.1m to $592.1 million, Enquest has secured a fresh reserve based lending arrangement of $150m.
A Treasury Spokesperson said: “We want the oil and gas sector to invest in British jobs and our energy security. Last month we announced hundreds of new oil and gas licences to deliver cleaner homegrown energy for households and the EPL has always included an investment allowance to encourage the sector to reinvest its profits.
“This is alongside a new Energy Security Investment Mechanism to give investors the confidence to keep investing in domestic oil and gas production, supporting investment, jobs and domestic energy supply”.
Looking ahead, group production for the year is still expected to be within the guidance range of 42,000 to 46,000 barrels of oil equivalent per day to 46,000.
The company has also been awarded four carbon capture licences through the government’s approval process – which it looks set to work on despite concerns over the windfall tax.
Within the core business, Enquest anticipates further drilling at Magnus and at Golden Eagle and a continuation of well plug and abandonment activities at Heather and Thistle, which it also expects to deliver in line with 2023 guidance.
Enquest trades on the FTSE AIM All-Share, and will open in today’s session at 17.43p per share.