British oil and gas firm Ithaca Energy has warned that failure to guarantee a more stable investment climate could jeopardise its involvement in a controversial major North Sea oil and gas field.
The FTSE 250 firm has a 20 per cent stake in the project, called Rosebank, which has the potential to produce up to 500m barrels of oil – roughly equivalent to eight per cent of the UK’s entire oil output between 2026 and 2030.
Rosebank was expected to get final approval from the government last week, but an announcement never came through.
Gilad Myerson, executive chairman of Ithaca Energy, told City A.M. he was still “optimistic” a deal could be reached, saying that the firm was engaged in “very constructive” talks with the government over the project and working on solutions that “support the industry as well as tax collection.”
However, Myerson warned that the current windfall tax, and the uncertainty surrounding it, could force it to rethink its role in the project.
“Ultimately, this is going to be a multi-billion dollar project and usually when companies commit to such significant expenditure, governments provide certainty around fiscal policy in order to make sure that those interest investments will yield attractive returns,” he said.
Specifically, Ithaca is seeking reassurances from the government over the possibility of a price floor – a mechanism to be attached to the Energy Profits Levy so the windfall tax would not be applicable if oil and gas prices dropped down to ‘normal’ levels.
“I think it’s clear to everyone that, by definition, a windfall tax is when there are windfall profits. Where oil and gas prices are at the moment, there are no windfall profits. So, it’s very difficult to essentially call it a windfall tax,” Myerson said. “It’s just excessive taxation.”
Myerson added: “And when a company faces excessive taxation, then ultimately it needs to review its investments, and then prioritise accordingly, because the amount of cash available for these investments goes down considerably.”
A spokesperson for Norwegian oil titan Equinor, which owns the remaining 80 per cent stake in Rosebank, told City A.M. it was “committed to develop the Rosebank field,” adding that it hoped to “make a final investment decision and award the first contracts this year.”
A Treasury spokesperson said: “The Energy Profits Levy strikes a balance between funding cost of living support from excess profits while encouraging investment in order to bolster the UK’s energy security.
“We have been clear that we want to encourage reinvestment of the sector’s profits to support the economy, jobs, and our energy security, which is why the more investment a firm makes into the UK, the less tax they will pay.”
Ithaca’s warning shot comes amid growing controversy around the project.
Campaign group Uplift warned that the projected emissions from producing oil at Rosebank alone would be enough to exceed the share of the UK’s carbon budgets that should come from oil and gas production from 2028 onwards.
Tessa Khan, executive director of Uplift said: “It is impossible to reconcile approving a huge new oil field like Rosebank with the UK meeting its climate obligations.”
“Ministers also know that approving Rosebank will do nothing to lower UK fuel bills and will do very little for UK energy security as most of these reserves will likely be exported,” she added.
The International Energy Agency has stated previously that there should be no new oil, gas and coal development if the world is to reach net zero by 2050.
The project could receive up to £3.75bn in UK taxpayer support under the investment relief outlined in the Energy Profits levy, meaning Equinor would pay just £350m to develop the field, drawing criticism from shadow climate change and net zero secretary Ed Miliband last week.