Member Info for Dumbly

Tessa Khan, Executive Director of campaign group Uplift, which was also involved in the case, said: "There is no public benefit from new licensing, only more profit for oil and gas companies."

I start to think this person is a Putin plant. She wants to damage the UK and weaken its security. What she is saying is she would prefer jobs, GDP, and profits (an uncertain result of taking risks) are created elsewhere, and carbon emissions to be higher than they could be. She needs to be called out!

Https://www.reuters.com/world/uk/greenpeace-loses-legal-challenge-uks-new-north-sea-oil-gas-licenses-2023-10-19/

Now, come on NSTA, tell us the outcome of the 33rd round of licencing.

Steel, this, RH leaving, was covered on 5th snd 6th October by romaron and others.

”We are Conservatives and believe in a free market”. Our objectives with regard to hydrocarbons in the UK, for a multitude of reasons positive for the UK, are:

1. “Max-out the North Sea” and take out “every last drop” of oil.

2. Increase the related tax revenue .

To enable and achieve these objectives we will:

A. Impose an additional windfall tax of 25% for 3 years.

B. Increase this windfall tax to 35% for 6 years.

Companies were preparing to invest for greater production in the NS. Then came the EPL and investment fell off a cliff. This has and will result in… reduced production and less absolute tax amounts.

You could not make this stuff up.

The investment exception, even if mainly just words at this stage with actual investment penciled in for well in the future, is Equinor/Ithaca with Rosebank, and one wonders what assurances may have been given to ensure the investment actually happens.

Https://www.energyvoice.com/oilandgas/north-sea/539108/majority-of-scots-in-favour-of-rosebank-oil-field-drilling-poll-suggests/

Interesting, for us, and also because it looks like results in Scotland at the next GE will be key in whether Labour can get a workable majority at Westminster.

Also, Sunak, as the article states, may want to take from the NS “every last drop [of oil]” but it simply is not in his gift to deliver this. Only private investment can do this and the Tories have done everything they can to actively push this away. A pivot on fiscal policy will not be enough to now change this. Now it will need financial incentives , guarantees, and… love :) .

Another sane voice:

https://www.pressandjournal.co.uk/fp/politics/scottish-politics/6220518/fergus-ewing-oil-gas-debate/

Yesterday I wrote: “sekforde, yep, need to leverage them there tax losses, open ye pot o’gold, but very hard for seller or buyer to know if they are getting fair value when the long-term tax regime is not known and when, supposedly, knowing same could be on the horizon (see call for evidence). same for any other m&a activity.”

Maybe that’s not right, as maybe some M&A activity could take place now even in anticipation of unknown changes in the long-term tax regime. I am thinking along the lines of merger-type deals, where a deal could be reached such that any increase in the value of the merged enterprise would benefit more or less equally the previously independent parties. Could an example of this be Harbour with its UK profits and EnQuest with its tax losses/credits dowry? I know LC has said no more UK investment and I assume AB wants to maintain his independence as pretty much an owner-operator, but such a deal looks good for both companies. How long can companies wait (to know the long-term tax regime) to do value-adding M&A? For example, the inflation/adjustment value of the tax losses/credits decreases as every month passes.

I am well out of my knowledge-depth in knowing what M&A activity could and could not work and which companies could fit, so if anyone knows more/better feel free to comment as needed. Thanks

Nothing much not known but another voice highlighting the damaging unintended consequences for the UK of the EPL:

https://www.energyvoice.com/opinion/538685/viaro-energy-uk-windfall-tax/

krak, agreed , the government and opposition is putting national security at risk. irresponsible and selfish behaviour jeopardising the uk. selfish because done for personal power. like charity, security starts at home! brex**** was supposed to unleash the uk economy once free to act from (non-existent) constraints, yet instead ridiculous self-imposed “pandering” constraints are now placed. considering the uk is lucky enough to have the hydrocarbons and private companies would have been willing to invest, the behaviour of the politicians is like an act of national flagellation for past sins. pathetic.

romaron, one hopes part of the output from the call for evidence should be to show tax revenue projections under different scenarios.

aim, sounds like you’re referring to the “great simplification”.

sekforde, yep, need to leverage them there tax losses, open ye pot o’gold, but very hard for seller or buyer to know if they are getting fair value when the long-term tax regime is not known and when, supposedly, knowing same could be on the horizon (see call for evidence). same for any other m&a activity.

fin, can’t argue with your logic. good luck to you, and to the rest of us. we sure do need it.

a good weekend to you all!

Https://www.energyvoice.com/oilandgas/north-sea/exploration-production/538930/north-sea-wells-decline-nsta/

Well there’s a surprise… Extract from article below:

The North Sea Transition Authority (NSTA) said just 48 development wells and 12 exploration targets were drilled in 2022.

That fails to meet the NSTA baseline ambition of 60 development wells per year to slow the decline in production and “securing a greater proportion of domestically-produced hydrocarbons”.

That development well target is also on course to be missed in the years ahead.

The decline will continue in 2024 (53 wells planned) and 2025 (36 planned). That compares to 62 wells in 2021, and 73 in 2020.

Though not named directly in the NSTA report, it comes as operators grapple with the UK windfall tax, imposed last year, which has seen 90% of operators cut spending, according to Offshore Energies UK (OEUK).

On the decline, the report does say: “This may also be due to the limited capital available for E&A and production activity in the UKCS.

Because of the view (mistaken) that oil demand is decreasing and the “toxicity” now associated (and other things) with oil and the price volatility, investors, in general, have given oil a wide berth. And then, specifically for the UK, along came…the EPL which, as romaron has said, has been more effective in scaring off investors than JSO could ever be. And this is at a time when the UK is a net importer of 35 of its oil requirements* and 42% of all worldwide oil exports originate in 2 countries; Saudi and Russia. Nothing "insecure" there then. Not. Well played Sunak and Hunt… There is a chance to improve the situation for the UK but seems unlikely the required action will be taken fast enough.

This interview from last week with long-term favourite Art Berman, is well worth watching for an “oil update”: https://youtu.be/n-IetuaYLmw?si=beSl4Edku0Cvd8jQ

*For 2017 have the UK as a net importer of 35% of its oil requirements. That %age is probably higher now. (For the EU I have this net oil import figure at around… 85%. So, should there be a shortage of oil… there will be plenty of competition for what’s available.

Krak, I am hearing the cause was a diesel car. Let’s wait to draw conclusions until the cause is confirmed 100%.

Krac, has it been confirmed the cause of the fire was an EV auto-combusting?

“The pervasive narratives about off-shore wind in recent years have been that costs are falling, and that wind power is cheap. But as I noted in a previous blog, and in my latest article for The Telegraph [posted by Frac], things are not quite so rosy as wind turbine manufacturers have been losing money hand over fist in recent years.”

https://watt-logic.com/2023/10/10/off-shore-wind-targets-at-risk/

In the July 23 Treasury document about the Oil and Gas Fiscal Regime Review Call for Evidence it states: “In June 2023 the government announced the Energy Security Investment Mechanism (ESIM). This confirmed that both average oil and gas prices will need to meet or fall below set price thresholds for two successive quarters in order for the EPL to be disapplied before March 2028. The government is currently seeking views on the technical detail of the ESIM separately and therefore the ESIM will not be considered as part of this call for evidence.”

“Technical detail” could include everything, including the price thresholds, the requirement for both oil and gas to be below the threshold, and the 2 successive quarters requirement. Surely the industry and the lenders view the ESIM as-is as a token gesture which actually worsens the situation as it suggests the Treasury’s desires are not really aligned with the government’s stated policy to “Max-out” production in the North Sea. Without changes to make the ESIM more fit for purpose, the very companies it aims to incentivise to invest will not, indeed cannot, invest. I live in hope that the ESIM could be modified as this could be a quick-fix to improve things by increasing the RBL levels and improving confidence in both lenders and investors. This could, for example, enable EnQuest to make acquisitions and accelerate the release of value from their tax losses/credits.

Also, I checked and regarding the output from the Call for Evidence, the same document states: "The government will review all responses in considering next steps towards the long-term design of the fiscal regime and will use the evidence gathered from this call for evidence to inform that process. Respondents may wish to focus on the issues which most impact them, but the government welcomes responses to any questions that respondents choose to answer. The government will confirm next steps by the end of this year.”

As stated before, my view is that for EnQuest and others the biggest issue is not the EPL per se but knowing what comes afterwards. A sensible change soonest to the ESIM would be a step in the right direction to increase confidence, and then knowing (sometime after the end of this?) the long-term fit for purpose fiscal regime would enable investment decisions to be made on equally long-term projects and take advantage until March 28 of the investment incentives in the EPL.

No national-level politician can any longer afford not to understand “energy”

“The time has come for a paradigm shift, an intellectual revolution that places energy at the heart of everything we think, everything we do. This will help us connect the dots and provide a coherence in policy that is, at present, all over the shop. Above all, though, electorates need to vote for politicians with the seriousness to face up to our challenges rather than charlatans who pretend they don’t exist. In this sense, the energy transition is the greatest test for democracy, too.“

There’s a reason for all these wars: minerals will decide who rules next

https://www.thetimes.co.uk/article/59a622e8-653b-11ee-95ba-ef572a1cc3ed?shareToken=7cb9954840f1bdaed7d3fda63dc899e5

This is with regards to part of romaron’s post 14:16 yesterday:

“I also mentioned $2.3bn immediately available and $1.3-1.4bn in 2025 and called them tax credits. Another investor asked if they were tax credits or tax losses. I don't know. I assume one of you clever sods can clarify. I just write the numbers down.”

I was aware of the $2.3bn of tax losses at end June 2023. I did not know another $1.3bn of tax losses will become available in 2025.

Regarding the difference between tax losses and tax credits, I understand things as follows. Assume EnQuest has no tax losses and in a given year makes $1bn profit, then this profit would be subjected to a corporation plus supplementary tax of 40% giving rise to a tax payable of $400k. However, if EnQuest had tax losses from previous years, as it has, it could use $1bn of these losses to avoid paying the $400k. The “tax losses” generate “tax credits” (according to the tax rate at the time the losses were incurred).

The potential value, therefore, to EnQuest of their tax losses in terms of credit against future tax is 40% of the tax losses accrued and accumulated. In reality, the actual Net Present Value of these tax losses/credits depends on if, when, and how they are used. They are the sealed “pot of gold” I’ve previously referred to or EnQuest’s dowry as romaron calls it. I would argue the real NPV is around 60% of the tax credits, so 60% of the 40% of the accumulated tax credits.

(N.B. Tax losses/credits cannot be used to offset EPL charges.)

That’s my understanding of things, but please comment if I’m getting anything wrong.

Have a good weekend!

Aim, the breaking of that “implied contract” is why it is reasonable to assume companies will not agree to major new investments without some form of knowledge, at least of the outline, of the long-term fiscal conditions together with the an-assurance of a contractual guarantee covering its stability.

At some point I can see a spreadsheet coming out to show how for the country the longer-term benefits of these new fiscal conditions will far outweigh leaving things as they are now.

Stevo, re taxation in Malaysia vs the UK, the data in the RNS supports the conclusion that Malaysia is a worse tax environment than the UK. However, this data-set does not give a full picture. For example, EnQuest’s 2022 Corporation/Supplementary tax is lower than what it would have been without use of the tax credits accrued in previous years. Taxation, as for sure you know, is very complicated being influenced by many variables from the sides of the government, the tax payer, and the environment i.e. the same tax regime in a low or high cost production environment would have different results. As I understand, Malaysia charges a tax of 25-38% on petroleum related income. The UK charges 75% on profits. But, as said, there are many many other variables to consider. To get a better idea of whether at this moment which country’s tax regime is more favorable for EnQuest would probably require a question to IR.

Sekforde, explicitly guaranteeing future tax rates may not be possible but deals are often done binding future governments/Parliaments. Look at the recent subsidy deal with Tata re Port Talbot steelworks. So, the outcome of creating a fairly stable tax environment can be created.

Labour has already confirmed they would not revoke licences and to provide fiscal stability something along the lines of point i. in this article could be agreed: https://www.engage.hoganlovells.com/knowledgeservices/news/uk-north-sea-fiscal-and-regulatory-stability_1?nav=FRbANEucS95NMLRN47z%2BeeOgEFCt8EGQ71hKXzqW2Ec%3D&key=BcJlhLtdCv6%2FJTDZxvL23TQa3JHL2AIGr93BnQjo2SkGJpG9xDX7S2thDpAQsCconWHAwe6cJTnP4YyfkSa3wmxaD%2BHibKrZ&uid=iZAX%2FROFT6Q%3D

Are you excluding an agreement to implement a deal as this could have been reached?