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Itsa, indeed, divest from the NS by selling producing assets to companies with tax losses to consume e.g. to EnQuest :)

Agreed, Dan. If Reeves wants to encourage/get investment then the “technical details” and “confidence” referred to below must include changes to the fiscal situation, otherwise little to nothing will change.

“Reeves said she and Miliband were working “pretty intensely” on the technical details of tieback arrangements with energy companies, and expected to make an announcement soon.

“It is the quickest way to bring on stream more oil and gas, and it’s important that we get the detail right, so that companies have the confidence to exploit those resources,” Reeves said.””

Dan, without changes to the fiscal conditions, few tiebacks will happen. The EPL, so mainly Reeves, is the roadblock now. Reeves also said they recognise it is important to get the details right “so that companies have the confidence to exploit those resources,” and this will require changes to the fiscal conditions to provide this “confidence”, so… 🤞 🍀 .

Although “so that companies have the confidence to exploit those resources,” will require changes to the fiscal conditions to provide this “confidence”, so… 🤞 🍀 .

Absolutely, Profit, it’s all about the EPL.

Reeves comments, whilst positive and an upcoming announcement encouraging, is ambiguous and does not point specifically to changes to the fiscal conditions.

“ Chancellor Rachel Reeves has said new tieback drilling in the North Sea is the quickest way to bring on more oil and gas, and confirmed she and energy secretary Ed Miliband are working to break the link between gas prices and electricity costs.

The chancellor made the comments in Washington, where she was attending the International Monetary Fund’s spring meetings.

Reeves said she and Miliband were working “pretty intensely” on the technical details of tieback arrangements with energy companies, and expected to make an announcement soon.

“It is the quickest way to bring on stream more oil and gas, and it’s important that we get the detail right, so that companies have the confidence to exploit those resources,” Reeves said.”

It is not within the powers of the UK government to impose taxes on profits generated by subsidiary companies outside of the UK. They could only do this if profits had been artificially shifted outside of the UK or if significant UK activity was involved in the generation of overseas profits, but neither of these is the case.

When it suits the State it interferes and distorts the market, as in May 22 with the introduction of the EPL. Upsetting the market like this made certain fields unviable and therefore closed earlier than expected putting more pressure on the decom supply chain and therefore increasing costs. When it suits the State it does nothing to help oil and gas companies, as during Covid. The state can also impose fines, as now due to non-respect of decom timelines.

"EnQuest Heather also argues that, in light of the operational circumstances, it would in any event be inappropriate to impose any penalty. It points out that early, unanticipated cessation of production across multiple fields compressed timelines, bringing forward cessation dates by between 4.5 and 7.5 years. This led to a convergence of decommissioning obligations within a twelve-month period, which was further complicated by restrictions arising from the COVID-19 pandemic". "Senior [EnQuest] management intervened to drop contractors as costs rose or when they believed the work could be completed more cost-effectively at a later date."

I don't know if the timing of things; Covid, Russia's invasion, EPL, earlier than planned field cessation, all fits to support EnQuest's argument, but my main point is that the same State which changes the rules of the game and upsets the dynamics of the market is also now imposing fines. It's possible EnQuest also delayed things to avoid paying higher than normal rates as well as to prioritise company solvency, compromised through the introduction of the EPL, over decom timelines.

The State is also robbing EnQuest in another way. The tax losses accumulated through investment in previous years were expected to be used against future profits. However, the unjustified windfall tax means profit has been stolen and therefore the tax losses remain unused. These is also theft of the value of the non-use of the tax losses as they are not inflation-adjusted to compensate. And I could go into the lost opportunity cost.

Investors play by the rules yet the State changes the rules on a whim of political expediency. And now the State expects investors to come to the rescue to increase energy security (OK, not exactly got to this point yet, but it will do). In most other industries the industry leaders would be screaming from high heaven about this. But the publics' perverse relationship with oil and gas, both essential yet despised, means they prefer to keep their heads below the parapet of public opinion.

Voice, yeah, who knows why they seemingly postponed changes to the OGPM intro date. Although, the speculation was they would bring forward the intro to Autumn 27, and that would NOT have covered the current situation.

Voice, yeah, who knows why they seemingly postponed changes to the OGPM intro date. Although, the speculation was they would bring forward the into to Autumn 27, and that would have covered the current situation. Also, the full details to be able to implement the OGPM and for companies to model the impact are not yet available. My guess is they did not want to be seen to doing anything when oil was around $120 which could have been argued as a reduction in windfall taxes. Plus... this situation will have boosted EPL takings and they probably want to take advantage. Yet again, opportunistic short-termism. Now is exactly when the OGPM should have been tidied up and implemented. For sure, most of the potential investment will not be brought forward if the OGPM is also not brought forward. Brent is already back close to the OGPM 26/27 threshold (leaving aside the paper v physical v hedging aspect), so why would anyone invest now and risk having oil back around $60 and the EPL still in place until 2030? Will the pressure on Reeves & co force an earlier intro of the OGPM?

Voice, you may well have a valid point there, about OPMG generating more tax than EPL. As said, situations like now is exactly what the OPMG was designed for; “…to ensure that the mechanism delivers a fair return on the UK’s resources during periods of unusually high prices; to deliver predictability and certainty for industry; to minimise distortions on investment decisions; to minimise administrative burdens for both taxpayers and HMRC; and to recognise the distinct characteristics of the oil and gas markets, ensuring that any approach remains responsive to their differences and specific challenges.“, If the OGPM is left until 2030, it is likely it will no longer be relevant/fit-for purpose and, if Reform/Cons are in control, may never see the light of day. Labour need to use it now or risk to lose it. The OGPM will be charged at 35% of realised revenue, so after hedging, above the threshold ($90 for oil in 26/27). The details on the way and time period to calculate the overall/average realised price is unknown. All profits will be subject to CT/30% and ST/10% as now. There is insufficient info available to know at current conditions and at an individual company level whether EPL or OGPM would create more or less total tax than with the EPL. EnQuest with the EPL, and until the tax losses are consumed, is paying 38% tax on profits, whereas with the OPMG it would be paying 35% on realised revenue above $90 (I’ve not seen anything about whether tax losses can be used to offset the OGPM, but as it is a tax not a levy, it should be). The Majors, considering they are less likely to hedge or have tax losses, would likely be paying more total tax at current oil prices with the OGPM than with the EPL, something which the government could highlight to appease the braying crowd.

Romaron, Starmer really is infuriating, Sir Dither and delay. Makes one want to pick up a slimy Flounder and gently slap him several times backwards and forwards.

“I think oil and gas should be part of the mix for many years to come”. It is going to be whatever he thinks or wants. The thing in his power is to influence how much comes from the UK and how much from outside.

“[UK] Oil and gas, good for revenue, good for jobs, yes. But, will it get them [UK residents] off the rollercoaster, when somebody else somewhere else in the world does something.” So, because something is good for two things, but does not change another, it’s a good enough reason not to encourage it? And it can be argued that the “good for revenue” part means it’s also good for the cost of living as this give the treasury the opportunity for targeted support they would otherwise not have. Plus, there is the lower emissions aspect, and if there’s not enough energy… the rollercoaster won’t work anyway.

Things are really getting serious now. Starmer has ratcheted things up along his annoyance scale from “mildly peeved” to “fed up”. Once the gauge reaches “starting to get angry”, he may instead of complaining of the actions of others decide to do something within his power to improve the situation. Removing the EPL and fast tracking consenting of licenses etc to stimulate the UK economy and protect jobs would be a good start.

“British Prime Minister Keir Starmer said he is "fed up" seeing energy bills in the U.K. swing up and down because of actions taken by U.S. President Donald Trump and Russian President Vladimir Putin.”

Https://www.investegate.co.uk/announcement/rns/enquest--enq/enquest-response-to-nsta-sanctions-/9512605

The general architecture and thresholds for the OGPM have been communicated but the details to calculate the impact of hedging on realised prices and the time period for price averages for the thresholds have not. Of course, the more important is knowing when the OGPM will start, but these missing details are important too, essential actually, as without them the OGPM cannot start. I wonder whether the industry is exerting pressure to know these details soonest, both so companies can model the impact and so the OGPM could actually be implemented.

Yes, the current situation is exactly the sort of reason to accelerate not delay the implementation of the OGPM, something designed precisely for situations as now. Leaving the EPL in place signals the government prefers opportunistic short-term price-gouging over long-term economic growth for the country. (And that’s on top of price-gouging via the VAT and duty on fuel.) Companies won’t invest at current conditions; the risks are too big with EPL still in place as oil price drop inline with resolution of the crisis.

As said, the focus and pressure for now needs to be placed on Reeves/Treasury and less on Miliband.

Kraken, I could see oil dropping $10-15 on an end of the war/opening of Hormuz, and then over 12 months back to around $70. Having said this, all guesses are good.

Profit, agreed, rational reasoning (although Brent averaging $80 over the next 5 years is fairly bullish). Problem, tho, is that the tax losses only have real value if EnQuest shows a profit, and below $70 it starts to get tricky. AB comes across as a safety-first type, and it seems unlikely he would agree to a deal where he is overly exposed to a potential downside.

But, first, let’s see what happens in the next… 9 hours,

I don’t intend to be a Dumbly Downer, but… I keep thinking of AB’s comment along the lines that the downsides (for the company) of the current situation need to be kept front of mind (I can’t recall which interview/presentation he said this). It is surprising that the oil price has not spiked higher. Hormuz is closed and Brent is “only” at $110; not a particularly high long-term inflation and extreme-spike adjusted value. Once the main effects of the current situation is over, say in 6-9 months, there could be an enormous oil glut (See the “Doomberg view”) and a price plummet. The good thing is that, whatever happens, EnQuest is accumulating cash and will be financially more resilient at end 2026. If there is not an announcement soon about an earlier implementation of the OGPM, the window to encourage investment could be lost. Should there be no change to the tax situation and Brent indeed trend down to say $50/60, who would invest? The OGPM was designed exactly for a situation as now; to gather extra tax revenue at times of price spikes whilst at the same time providing the fiscal conditions to encourage investment. The Iran/Hormuz situation, rather than giving a breathing space for indecision and meaning it would still all be OK if the OGPM changes are communicated later, actually makes it imperative an announcement about the OGPM is made now. Labour’s dithering on the OGPM implementation, and should the oil price drop back to $50/60, risks killing beyond recovery UK oil and gas production and its supply chain maintenance.

Given this backdrop of massive uncertainty around the 2 main macro variables of fiscal conditions and price of oil, striking deals will be incredibly challenging. Contingent payment clauses etc based on changes to these 2 variables can be made, but reaching an agreement to satisfy both sides of a deal would be tough. For all this, I can’t see AB inking a deal now which plausible scenarios could result in having overpaid for UK production, and therefore a deal unlikely in the short-term.

The focus is on Miliband but maybe for now it should be more on Reeves. Tiebacks have been greenlighted, and Jackdaw (and Rosebank) will also be given the go-ahead. I can’t see, tho, any way Miliband would allow new licenses. However, for the majority of these already available and upcoming opportunities to actually produce, will require a change in the fiscal conditions. Reeves has made it clear she is in favour of more drilling, so she needs to create the conditions to enable this; essentially implementing the OGPM soonest (forget a complete scrapping of all windfall taxation, this is not going to happen and, anyway, the OGPM would suit Enquest fine). It’s in Reeves’ gift to act so her words are matched with her actions. Removing the fiscal roadblock would also heap even more pressure onto Miliband.

OK, we all know this, but a couple of good interviewees. The pressure is building from all directions, and as Hunbah just said "these things tend to move incrementally until they don’t."

https://youtu.be/8Mp21_8y8QI?si=gLk9pHrQivjXPELW

Starmer just can’t bring himself to say “oil and gas”, preferring instead to refer to “an energy chokepoint”. My cynical interpretation of this and him not mentioning the need to modify behaviour to conserve fuel etc, is to avoid leaving Labour open to accusations of energy security recklessness together with further questions on why the UK is not exploiting to the economic max the North Sea. For me, this confirms their (Miliband’s) absolute resistance to be bounced into a North Sea policy change. Instead, Starmer continues to say the best way to manage the situation is to call for deescalation. This, of course, is desired, but it is not mutually exclusive with event-driven adaption. He’s pursuing a risky policy for the country, and fuel shortages down the line would result in claims of said recklessness having been wholly predictable. Go fill up the tank!