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Not sure I understand your question. It is the "Energy (Oil and Gas) Profits Levy Bill". Interesting to note what is in the parenthesis. Suspect more levy Bills will be introduced for the Electricity and other sectors; but they are more compl
Whilst I think it abhorrent govt introduces a Bill like this, accepting that it will be done then it is good for JOG that there is no early phase out of the levy. Certainty is preferable in this instance.
The Draft bill can be read here. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1084203/Draft_Energy__Oil_and_Gas__Profits_Levy_Bill.odt
Will be interesting to see how it gets watered down by the time it becomes legislation.
Why would the government mention the Levy and then omit it on the bill ? . This is a very important and no doubt will be picked up . The government cannot be trusted , they will say anything to appease the public . I’m feeling a bit uneasy about this , what are your feelings ?
The Bill includes the expected sunset provision of 31 December 2025. The original announcement had indicated that the Levy could be phased out earlier “if oil and gas prices return to historically more normal levels”. The Bill does not include any provision in this respect. This means that the Levy would not end before 31 December 2025, unless the Government brought forward amending legislation in the future.
When a company is treated as having incurred investment expenditure for these purposes depends on the type of the expenditure. In relation to capital expenditure, this is determined by a general rule is that the expenditure is treated as incurred as soon as there is an unconditional obligation to pay it. This general rule is, however, subject to certain exceptions. If, for instance, the expenditure is not required to be paid until a date more than 4 months after the unconditional obligation to pay has come into being, the expenditure is to be treated as incurred on the payment date.
Overall, this means that the investment allowance may not be as generous as it appeared when the measure was first announced, and it is questionable whether it really works as an incentive for new investment. Given the long lead time for a lot of oil and gas projects, in practice, the investment allowance will likely benefit only those projects that are ready for final approval in a fairly limited window and not those sanctioned between now and the end of 2025 where a material part of the expenditure will not be incurred for the purposes of the legislation until after 2025.
For JOG there is an expected Capex (incl. 20% contingency) of around £1bn for Phase 1 which has a target first oil of Q4/2025. So in theory the timescales fall nicely for JOG but with the ever present risks of UK govt rescinding the tax levy 'early' and/or the likely ambitious development Phase one date over running by a wide margin. In other words, the quicker the farm-out/development programme the better; based on the draft legislation.
Consultation period should have finished yesterday over the draft legislation;
https://www.gov.uk/government/consultations/draft-legislation-energy-oil-and-gas-profits-levy-bill#:~:text=On%2026%20May%202022%20the,measures%2C%20also%20announced%20in%20May.
Carcosa61, I was going off a Guardian article which states "The government hopes to put draft legislation in place by early July.". I was therefore overly optimistic where the follow-up parliamentary timeline is concerned and not having taken into account the summer break. Thank you for the additional considerations.
PJT12, Any particular reason why you think July for legislation?
The Bill has yet to be introduced https://bills.parliament.uk/ and the summer break starts 21 July 2022 until 5 Sept 2022 so it seems to me it will not become law until Q4/22 at the earliest.
I would think no Board of Directors would approve major capital expenditure until the legislative details are known; unless any such agreement with JOG carries a number of caveats.
The key sentence in the quote from below (Telegraph) is the last one, "The UK’s offshore sector includes many independent companies who spend years planning investments that can be very risky,” she said.
JOG and similar companies do not carry that "risk" because their resources are a known quantity which makes them attractive to tax-saving partners.
Last night Deirdre Michie, the chief executive of Offshore Energies UK, warned that without investment, some 80 per cent of the UK’s gas and 70 per cent of the country’s oil supplies will need to be sourced from abroad.
“The windfall tax may not affect projects already under way – but is likely to deter investments under consideration for which funds have yet to be committed. The UK’s offshore sector includes many independent companies who spend years planning investments that can be very risky,” she said.
Some will be spooked by big companies (Equinor) pulling drilling projects in protest at the windfall tax and requesting potential changes to the legislation for it before it is passed or otherwise in July - and JOG is therefore likely to drift in the short term. However, there is no change to the fundamentals where JOG is concerned. We also remain in a stronger position for FO in the short to medium, something that was strongly on the cards well before windfall tax was even mentioned. Expect news anytime after the legislation goes through (this month)n- or otherwise - as I suspect that is what they and potential partners are waiting for. That is my understanding but I welcome any corrections or more insightful replies.
What are people's views on the week ahead? Continued slide or news/sentiment taking us back to £3 territory?