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So the biggest producers in the North Sea could end up listed on the US stock exchange. What a sad state of affairs the UK is in.

It does read that they’ll only allow existing O&G licences to be utilised, so not sure there’s any rowback in that statement.

The real damage will come from increasing the tax rate and doing away with the investment allowance anyway. No one in their right mind is going to invest in an industry with a 78% tax rate, where you can’t offset CAPEX. Labour are an absolute clown show.

What you seen Nitro? Do you have a link?

Dennis, you’re right of course. At some point they’ll be a recognition that their proposals are absolute fantasy.

The problem is, and assuming Labour win the election, how much damage will they do to O&G firms before they come clean?! It really is frustrating that we have a shadow chancellor saying they’ll increase taxes further, even when prices are back to inflation adjusted norms.

As you alluded to in an early post, the problem is basically household bills. Consumers/businesses are still feeling the pinch, so it’s very much a vote winner to talk about further taxes and redistributions. If bills fall, then maybe there can be some sensible discussions about tweaking/removing the tax.

Upomega,

Why is it too late to hedge for next year? The forward curve is above £1 per therm for all of next year. When the energy price cap gets lowered next month, energy supplies will start bringing out switching deals again, which will give producers plenty of opportunity to hedge (if they choose to).

The problem is still the EPL though, at £1 per therm and $75 oil I have FCF at about $300m. With normal gas prices (70p a therm) and no EPL the company would have produced nearer $400m of FCF. So basically the so called windfall tax isn't just a windfall tax anymore.

The good Doctor has a point.

With bills still x2 what they were, scrapping the tax doesn’t seem like an option, it’s just too politically toxic.

However, tweaking the tax by increasing the headline rate and removing the investment allowance is a possibility. All whilst introducing marginal rates for the EPL based on certain realised prices. Where there’s a will there’s a way.

Upomega, I can give you a FCF estimate for next year if you give me an O&G price to use? The forward curve for Gas is above £1 per therm for next year, so theoretically Serica could hedge at those levels.

I DO NOT want this to happen. But there’s always the potential that Gas does a moon shot in winter again. A couple of weeks of snowy, still, below zero weather and Europe is stuffed.

Personally, I would prefer normal pricing but with the EPL removed, not sure we’re going to get that though.

Great article, particularly like the last paragraph basically telling politicians to stop being children.

No new O&G licences is bad, but let’s not forget Labour also want to increase the EPL and do away with the investment allowance. The impact of that alone would be disastrous for the industry.

Kistos CEO talking about the windfall tax (EPL). Definitely worth a listen, even if he is just spelling out what we already know.

https://twitter.com/kistosplc/status/1664225983317114880?s=46&t=uz3in5yMdDdYvqnOjeh9vg

What percentage of Zama do we own?

Very good interview, he’s very articulate in spelling out what we all know. It’ll probably fall on death ears though, both parties seem determined to destroy the industry.

The Tories are all over Twitter making the connection between Labour and Just Stop Oil, but don’t talk about how the EPL is driving down investment in the sector.

Labour don’t understand that doing away with the investment allowance and increasing taxes further will decimate the industry. No one is going to investment in a sector where you can’t offset CAPEX and with a tax rate of 78%. If Labour did follow through with this, it’ll probably go down in history as one of the worst policies of all time.

I expect politicians will come to their senses at some point, thankfully we have a 10% divi to ease the pain whilst we wait.

NewKOTB, I don't know how the cap is calculated, but you do raise some good points. With Gas prices so low, it feels incredible that both businesses and households are still stuck with bills twice what they were just a couple of years ago. Moreover, it does make tweaking the EPL politically toxic whilst bills are still so high. Labour would have an absolute field day if the tax was repealed or reduced. Gas prices are also firmer for next year (due to the risk of a cold Winter and restocking), which doesn't help with any lobbying.

I know with Octopus Energy (my provider) you can now switch to a tariff that tracks current market rates (max 50,000 customers) as a trial from the 1st July, so maybe technology is starting to catch-up. I'll probably move across to that over the summer/Autumn, as Gas storage levels increase, there's little incentive for prices to rise until we move into Winter.

Jeff, please explain what you think is coming and the impact on Harbour’s share price, if only to see if you end up right or not.

Personally, I think people are generally quite stupid and weak politicians are forced into knee jerk reactions by public opinion. Obviously you think this is by all design, which I disagree with.

If household gas prices had dropped to previous levels (they haven’t due to government meddling with price caps) no one would care about the removal of the EPL. Yet with household bills still twice what they were, it’s obviously a great way for the opposition to score points and make tweaking the politically toxic. Not a great place to be in, but here we are.

Happy, decomp comes with its own form of tax relief, so headline number isn’t the actual cost to the organisation, see note 8 about the deferred tax asset.

There is certainly a risk here though, low commodity prices and insane taxes (that Labour want to increase further) will certainly make fields economically unviable much quicker than expected, which would reduce reserves and result in the costs being incurred much sooner than expected.

One for the accountants, why would accelerated decomp increase the carrying value of the provision?

To repeat what I’ve been saying for many months, it’s the EPL that’s the problem not current O&G prices.

We’re now back at normal pricing, which is great for the consumer and taming inflation. Pre EPL, Harbour would have made good profits at these prices, certainly enough to support a share price much higher than we have now.

Current prices are a disaster for a company paying at 75% tax rate and the share price has responded accordingly. There’s also the risk of Labour government that are intent on making things worse.

Gas prices are still firm for next year due to the risk of a cold winter, which certainly doesn’t help when lobbying the government to tweak the tax.

Who knows how this plays out, but surely common sense prevails at some point and the EPL gets tweaked?! It isn’t a windfall tax anymore, it’s just an additional tax burden on a hugely important industry.

There you go doctorD. Gas prices were much higher last year pulling in all discretionary LNG cargoes. Storage levels will still be at target before winter but who knows what happens after that.

https://twitter.com/thierry_bros/status/1663013967176802304?s=20

Supuser, I never seen so much hatred to an industry that supports 200k jobs and contributes to our own energy security.

Labour are an appalling party. This is Ed Milliband yesterday talking about the Tories wasting tax payers cash. The ‘wasted’ money is just companies using CAPEX to offset profits, which is standard practice in every other industry. He doesn’t mention that, nor does he mention O&G is the only industry with a 75% tax rate.

https://twitter.com/Ed_Miliband/status/1663181537943203841?s=20

This is like a slow motion train wreck. The EPL is already causing havoc, brought in by a bunch of clowns, with another bunch of clowns waiting in the wings to make it even worse.

Labour are lying to the electorate, gas prices are back to historical norms, yet they’re still trying to whip people up into a frenzy about so called ‘war profits’. Yes it’s a vote a winner, but it’s also deceitful.

Following the weekend headlines, I suspect Labour mean no new O&G licences as opposed to no new O&G, but they seem totally oblivious to the damage being caused by the current EPL and are fixated on increasing it further. I doubt many companies will be queuing up to invest in a sector where you can’t offset CAPEX and need to hand over 78% of profits to HMRC.

Absolute joke of a country.

DoctorD, European storage levels are tracking lower than last year. Current spot prices not enough to pull in discretionary LNG cargoes. I would certainly bet against negative pricing.

Supuser, it’s an absolutely mess. The Tories are the ones that implemented the ridiculous EPL, which is already cutting investment and now Starmer wants to put the final nail in the coffin.

I’m not sure they understand how fast production would fall without additional drilling, I work guess harbour’s decline rate would be probably be around 15% without any new wells in existing or new fields.

I would agree with you though, it’s definitely an opportunity to win a few Scottish votes by championing home grown O&G. I don’t mind the push to renewables, but any strategy has got to focus on reducing demand for fossil fuels, not the supply. The current policies are just a recipe for disaster.