Member Info for Dumbly

Both Conservatives and Labour now accept oil and gas will be needed for decades to come and that a “cliff edge” type drop of production in the NS with associated increases in imports must be avoided.

(Red Ed’s “breach of contract” justification for accepting licences awarded between now and an election is clearly face-saving BS – Labour could always adjust fiscal conditions to make production uneconomical – as the Conservatives have done with the EPL.)

The EPL has caused many new production projects to be shelved and will cause most potential new investment to be scared off and instead invest where returns are likely to be better.

Therefore… the Conservatives, Labour, the Unions, investors may all want new production, but without changes to the EPL and assurances on the future fiscal policy (for a decade at least) I cannot see how sufficient new investment will be made to maintain let alone increase NS production. New licences may be awarded and accepted but either FIDs will be delayed or actually getting to production will be slowed down until assurances are received on acceptable fiscal conditions. Therefore, without further changes very soon to the EPL with associated assurances for the future fiscal policy a cliff-edge type drop in production will occur whatever the mentioned groups want. Something has to give; either the target or the fiscal conditions.

Sorry to bang on about this, but what am I missing?

See https://www.equinor.com/energy/rosebank: "First production is expected in 2027."

I don't know how up-to-date this info is. Unlikely tho that big volumes will be produced before the EPL's current end date.

The hope is that Equinor is also negotiating hard to get concessions and assurances regarding the fiscal conditions, altho for Rosebank the more important would be to know the conditions from 2028.

As said, looks like a deal has been made regarding Rosebank. I can’t imagine the government would want the embarrassment of approving Rosebank for Equinor to then make a negative FID.

Starmer on R4 this morning said “investors want continuity” and therefore Labour would honour new licences awarded before the next election as well as allow new drilling in existing fields. (Keir “clean-hands” wants Sunak to take the “dirty” decision and then claim his hands are clean. A form of Cakeism? I wonder what would happen if a GE was called now?)

Back to Rosebank – when would it be likely to start serious levels of production? Probably after the EPL ends?

Starmer was later asked what help Labour would give now to mortgage holders. E, voila, up popped again the Magic Windfall Tax Money Tree. He said the WFT has too many “carve-outs”and would be properly harnessed to help families struggling with bills.

About from the multiple pledging of the same funds from the WFT, I find this last statement at odds with “investors want continuity”, because before even continuity investors want the chance of a reasonable return for the capital they risk. I don’t see how Labour saying they will honour licences/new drilling as being enough, especially when they are saying they will strengthen the WFT. An Equinor may go ahead at these conditions, but “many Rosebanks” (thanks, romaron) will be needed to just maintain NS production levels. And to do this will require the UK-focussed Independents on-board, and I don’t see enough having been offered to them to be prepared to proceed with new licences or drilling. After the theft via the EPL to proceed with major new investment they will need much more than currently offered. They need to play hard-ball regarding the current and future fiscal conditions.

(On new licences – would be good to understand the cost involved to accept an awarded licence, as well as the conditions to start production i.e. is there a time limit from licence being awarded for certain milestones, such as first drilling, first oil, to have been reached. What I am interested to understand is whether an approach could be to accept a new licence award and then at minimal cost sort of sit on it until conditions improve.)

Then get Labour to SAY THEY WON't worsen the fiscal environment.

Mansardman, yes, that's my thinking. Starmer will be happy to have Sunak make the decisions that he would not want to be seen to be making but would accept. Both main parties now accept/say maintaining/increasing production from the NS is needed. Tick. But... the decision is not with them, it is with the relevant companies. And... they won't invest at current conditions/rhetoric. The next step therefore seems to be to pressure the Cons to modify further the EPL. Then get Labour to not worsen the fiscal environment. The industry bodies and leaders are already doing this. How can we play our part? Write to our MP? Post on Social Media?

Sunak’s fiscal policy means British North Sea jobs for Russian workers.

Companies will not invest where fair profits have been confiscated and the future fiscal regime is economically illiterate.

Thanks, GordonAlbert.

I don't understand Shapps Twitter post - it contradicts Starmer's recent comments, as just posted by romaron. What am I missing?

I would say to Shapps, that it is his government's fiscal policy which is going to cause those 3 things he put in his Twitter post, being:

❌ Destroy 200,000 jobs

❌ Make the UK reliant on tyrants

❌ Increase emissions from dirty imports

Just saw that too, romaron. So, actually, “the words” from both parties now do match the objective of continuing/increasing production from the NS. Problem is that the fiscal policy and the objective and the words don’t match. It is not possible, as has happened, to use false pretences to steal from investors and then expect investors to risk new capital under the false pretences regime as well as risk to have any reward from their risks gets stolen again. The next move now has to be both parties changing their position on the fiscal regime. Either this happens or the objective will not be met. Now both parties are on the same objective page the route to further fiscal changes, and future pledges, should be easier, no?

Now the UK (government and opposition) have through their policies confirmed their intention to inflict on the population mass self-flagellation by squandering the UK’s natural resources many other countries would love to have (and those who have will love to export theirs to the UK) the biggest issue for EnQuest is how to use faster/better it’s “tax wrapper” advantage. The net value of the tax credits decreases every day and faster so with higher inflation. The EPL floors may have slightly strengthened EnQuest’s hand in terms of financing capability. Surely the time is now ripe for the company to close a deal. If not now, when?

Apache’s UK assets. An acquisition by EnQuest with staggered payment? Could it be a feasible possibility?

Stumpy, unfortunately your understanding is correct, although the situation is even worse as BOTH oil AND gas have to be below their respective floor prices for the EPL to be suspended.

Yes, a sleight of hand con trick. Except the perpetrators are neither dexterous NOR convincing.

Yes, a sleight of hand con trick. Except the perpetrators are neither dexterous or convincing. They are amateurish, embarrassing. They really must think the management and owners of the oil companies are easily fooled, simpletons. If the ESIM was so good, something that won’t happen but enables investment, why was it not in place when the EPL was introduced/increased? They now officially refer to the EPL as a windfall tax. Why should a windfall tax apply to that part of the oil/gas price below the historical average, where ordinary not extraordinary profits (or losses…) are made? And that’s leaving aside how the historical average is calculated. The means, the ESIM, does not match the objective of stimulating investment to protect domestic energy supply and safeguard jobs blah blah. Anyway, little point ranting here. To reach coherence either the means or the objectives need to change. It’s a matter of time, and on this see https://www.gov.uk/government/publications/review-of-the-oil-and-gas-fiscal-regime-terms-of-reference/review-of-the-oil-and-gas-fiscal-regime-terms-of-reference Can the situation wait for this report and then the resulting actions? Let’s leave, for now, that to for investments to happen will also require agreements with Labour.

A question. The government says up to 100 new licences could be awarded this year. How does the licencing system work? Once awarded is there a big cost to “accept” the award? What is the time limit from accepting an award to initiating exploration or production? Once awarded, is the licence legally binding i.e. could a future government withdraw/rescind it?

Romaron, that's about it, as you state at 11:18. Sounds like a deal has been reached between Equinor, Cons, and Labour re Rosebank. Let's see how the industry and the likes of Gary Smith and others react/comment. Maybe, as others here believe, the RBL terms will improve slightly giving EnQuest some additional latitude especially for M&A.

The government is taking the Mickey: “The Treasury said on Friday it did not expect the price floor to be triggered before the tax’s planned end date in 2028, based on forecasts by the Office for Budget Responsibility.”

Seems a meaningless move, another fiendishly cunning trick by Jezza. If the floor had been the point the 75% tax-rate kicked-in then it would have meant something. I don’t see how this changes much for the independents, except providing some meagre protection should the price of oil drop sharply, something which would mean even bigger problems for them. Let’s see what the analysts say and the reaction of the independents. Unless I am missing something they should loudly say it changes nothing – try again Jezza or no major new investment. Maybe this announcement today was needed to get Equinor to agree to move forward with Rosebank, with this being the big prize the Conservatives are after.

Seems EnQuest’s only real value-increasing move is to use the tax credits sooner via some M&A activity.

Https://www.bbc.com/news/business-65853400

“The windfall tax on oil and gas firms will be reduced if prices fall to normal levels for a sustained period, the government has announced.

The tax rate on firms will drop from 75% to 40% if that happened, it said.”

The talk is that the EPL will remain until 2028 but will not apply if for 2 successive quarters the price of oil is below a certain level.

Assuming it happens, my guess is a floor on a progressive basis at 75 but on post-hedging sales income. Would be quite a chore for the bean-counters, but they like these challenges. Naturally, the relationship between the producers and the finance companies providing the hedging must be on a commercial/hands-length basis.

An arrangement like this would remove the disadvantages the smaller UK-focused Independents have in terms of both borrowing capability and (somewhat related) hedging obligations/requirement, and their inability to somewhat balance matters from downstream activities they don't have.

Floor, no floor, stepped floors, market price, post-hedging price, something else to accommodate the special situation of the smaller UK-focused Independents, maybe nothing.

Jeffrey 1979, thanks for posting this:

https://www.telegraph.co.uk/business/2023/06/08/jeremy-hunt-poised-ease-windfall-tax-boost-north-sea-oil/

I’ll believe when I see it and know the details, but gives hope if not now soon the fiscal conditions will change.

Maybe Jezza has been reading our posts!

(I changed the “subject” to avoid feeding the troll.)

you can just see them beavering away on the calculators on their smart phones, whilst thinking… so, as we, as a state, did not directly invest in our oil and gas industry (as, for example, those plastic commies in norway did), and we can’t control oil and gas prices, how can we, as a state/government, reduce the cost we have for oil and gas? “i know, i know the answer, it’s not too late” shouted little jeremy smugface, “let’s increase the tax the producers pay as this would be the same as reducing the price the people of the uk pay. yes, we will have to pay the market price, but (rather cleverly) we will recover a lot (75%) of this payment through the tax revenue we collect from our golden geese which we can treat as sitting ducks”. “and”, piped up even littler rich rascal, “let’s also give them a carrot to allow us to continue this devilishly simple yet fiendishly cunning scheme for the foreseeable. they are bound to fall for this”. “but, but, but…” mumbled jovial jacob, “doing this will turn these golden geese we treat as sitting ducks into dead parrots. we will have to pay market rates to other countries who will keep all the lovely jubbly tax revenue and jobs and economic growth, and we will end up looking like… turkeys”. “ok, better give the jezza another *** packet” said rich . to-be-continued. maybe.