Member Info for Megla

Banbury, where are you seeing this? Currently, we have corporation tax (CT) at 30%, the supplementary charge tax (SCT) at 10% and the energy profits levy at 35%. Interest isn’t a deductible expense for the SCT or EPL, but is for CT.

Absolutely Mike, that’s always been the answer. Introduce marginal rates based on realised prices. Under that scenario, they could even increase the top level of tax to get a few headlines, knowing that it’d only be triggered if energy prices went to ridiculous levels.

As you allude to, the problem is that they actually want the tax revenue, that’s been proven by this latest stunt. I say stunt, because that’s all it is, it’s not a serious attempt to be fair with the industry.

It really is embarrassing from this gov.

Why they think it’s acceptable that a penny difference in O&G prices could trigger hundreds of millions in additional taxes is beyond me.

Can you imagine the outcry if income tax wasn’t marginal? Where an extra pound in earnings took you into the 40% bracket so you actually took home less money. That’s the situation they’ve created for O&G companies.

It is absolutely correct. We’re now in a position where we hoping for low or high energy prices. Anything in the middle is dreadful from a FCF perspective.

A tax policy dreamed up by idiots.

Stumpy, I don’t think there are any proper details yet. Happy posted the link to the gov website with an overview of what’s changing, but it doesn’t cover these types of questions.

Regardless, I think it’s utterly absurd. Tax should always be progressive. Whoever dreamed this up doesn’t have a clue how the industry works.

Agree NewKOTB, it hugely complicates RBL lending.

As an investor this government is so incredibly frustrating. How can it be acceptable for FCF to be lower at current energy prices than it would be at prices underneath the cap? It just doesn’t make any sense. Tax should be progressive, it feels like a 5yr old has put this all together.

How companies are expected to plan when a £0.01 increase in the oil/gas price could trigger additional tax payments of $100m+ is beyond me.

A floor price is better than no floor price, but the Tories had the change to write some wrongs here and they’ve absolutely blown it at the 3rd time of trying.

Strike,

Who doesn’t understand? I’m pretty sure everyone understands that if prices go lower the EPL will be removed. It isn’t that complicated. The question from Happy is what happens if they go down for two quarters and then go back up?! That hasn’t been addressed yet.

We’re currently in situation where at current energy prices, we’re now worse off than we would be if prices were under the floor price. Do you really think that’s a good move from the gov? I’d say it was utterly insane.

Lol. A good and accurate way to sum it up proctor.

Scenario applicable to Harbour but just very rough numbers to illustrate the point.

Low Energy Price - 185k barrels, 50/50 spit, Oil price $70, Gas Price 53p a therm - NO EPL (blended realised price $54)

FCF = $460m

Current Energy Prices 185k barrels, 50/50 spit, Oil price $75 Gas Price 70p a therm - WITH EPL (blended realised price $63)

FCF = $300m

Some windfall tax.

Couldn’t agree more, Happy. This a pathetic attempt to address the problems in the industry. How can we have a scenario where at higher prices can equal less free cash flow? Can you imagine trying to run a business under this scenario. Utterly absurd.

People are easily pleased on this forum. The changes are marginally better than nothing, but they've still screwed the industry.

Literally, a penny difference in the Oil or Gas price could be the difference in hundreds of millions of pounds in tax. This is utterly ludicrous. A higher price should mean more post tax profits, we're now in a situation where it could be substantially lower. I'm sure everyone would agree that income tax rates being marginal makes sense, so why can't it be the same for O&G companies.

Granted the floor price helps in the extreme downside scenario, but this is still going to cripple FCF at current energy prices.

Agreed happy, this is an insult to the industry that invests billions and supports 200k jobs.

It’s like a 5yr old has put it together. Maybe just slightly better than nothing, but it’s still ludicrous.

It could remain in place with a floor price numbnuts.

Any changes surely has to be more sophisticated than a simple floor price [1] where the tax is either applicable or not. A $1 difference in the price under that scenario could mean, in Harbour’s case, paying hundreds of millions in additional taxes. Moreover, what would the floor price be based on, Oil or Gas prices?! Would it be marked prices or an individual company’s realised prices?!

The tax needs tweaking, I just hope they’ve actually thought about it this time rather than implementing another knee jerk reaction now prices have dropped.

DD, I doubt anyone expected the share price to rise massively on just news of the talks.

With current energy prices we’re getting the scraps, whilst HMRC are getting loaded with cash on the back of the company’s hard work. That hasn’t changed.

Harbour are rightly looking at options should nothing change in the UK, that alone isn’t enough to make a material difference to the share price. In my view of course.

Ideally, all major North Sea Oil & Gas producers would boycott the licensing round. The windfall tax is utterly ludicrous at these energy prices and they should be letting this known by not participating.

We’ve got a similar tax rate now to Norway, but without all the allowances that come with taking a development to production. The UK has got this hopelessly wrong and it needs to change.

Supuser, I think one thing we call all agree on is that Labour will be utterly disastrous for the O&G industry.

I’m certainly glad Harbour are at least looking at deals like this.

Not sure about all businesses, the super deduction (125% of capex) is hugely favourable for most companies.

Unfortunately, we only get 91% and Labour want to remove/reduce that.

Losing the Harbour listing would be another unintended consequence of the ridiculous windfall tax.

Sadly, anything that diversifies an O&G company away from the UK can only be seen as a good thing right now.

GoCPI, agree with what you’re saying. Although I would say Harbour’s shareholders have the potential to benefit immediately. The combined group will be a big player and the valuation metrics, which are better across the pond, should recognise that.

It can’t be a merger of equals, so I guess it all depends on what the percentage split of equity would be for us to determine whether it’d be a good deal or not.

Personally, I’m instantly in the favourable camp. The UK is becoming a dreadful place for O&G companies, with Labour expected to make it eve worse, so diversify away from the UK makes a lot of sense.