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A spokesman for Offshore Energies UK, the industry trade body, said: “Continued investment in UK energy opportunities, including oil projects, is necessary to ensure UK security of energy supply, support hundreds of thousands of jobs and contribute to the UK economy.”
However, it is thought that almost all that oil is likely to be exported, partly because the Kraken field is not linked to a pipeline meaning its oil is likely to be collected by ship and taken to whichever refineries buy it.
It means the main benefit for the UK will come from any taxes paid by EnQuest. The windfall taxes imposed by Jeremy Hunt, the Chancellor, currently stand at 75pc of profits.
Craig Baxter, of EnQuest, said: “EnQuest continues to explore ways to progress the respective development of the Bressay and Bentley fields.
“EnQuest is committed to supporting the energy transition in the UK and any future field development will be conducted in line with EnQuest’s commitment to reaching net zero scope 1 and 2 emissions by 2040.”
Mr Baxter added that the gas initially extracted from the Bressay field would be used to power the Kraken operations, replacing the diesel fuels currently used and so cutting emissions.
He said: “This would significantly reduce Kraken’s emissions, by displacing diesel that is currently being used to power field operations.”
A Department for Energy Security and Net Zero spokesman said: “As data from the independent Climate Change Committee shows, we’ll still need oil and gas for decades to come, even when we reach net zero in 2050.
“That’s why we’re backing the UK’s oil and gas industry with annual licensing rounds, supporting around 200,000 jobs, generating billions in tax revenues to fund public services and support with the cost of living and retaining the skills and expertise needed for the green transition.
“Even with new oil and gas licences, we have been clear there will be a managed decline in UK production, projected at 7pc per year, and they will not make us a net exporter or increase carbon emissions above our legally binding carbon budgets.”
Biggest North Sea oil find in decades to be drilled for first time
Sites expected to produce 500m barrels of oil despite net zero crackdown
A UK energy company is to start drilling at the biggest oil field discovered in the North Sea in at least 20 years in spite of a net zero crackdown on the industry.
EnQuest plans to bring two fields onstream which have the potential to produce 500 million barrels of crude oil over coming decades.
The sites, which neighbour Kraken oil and gas field, 80 miles east of Shetland, will reignite the political battle over the North Sea’s future in which Labour has threatened to block new production citing environmental concerns.
Their planned intervention has prompted warnings from energy companies that the UK risks cutting off its own energy supplies before it has a replacement.
The resulting “Kraken cluster” will have combined reserves larger than either Rosebank or Cambo, the controversial fields west of Shetland which attracted a backlash from environmental campaigners. Cambo was discovered in 2002 with discovery drilling at Rosebank taking place two years after.
Rosebank, which is predicted to yield 350 million barrels of oil, won a production licence last September after months of political wrangling. Cambo, with 170 million barrels of oil, has been in limbo since 2021 when energy giant Shell pulled out of the project because of the green backlash.
It comes as Labour plots a £11bn raid on the UK’s oil and gas industry as part of proposals to increase and extend the windfall tax, with the funds invested in “clean power to cut bills for families”.
The party has also proposed to ban new oil and gas drilling licences.
Energy companies are under intense pressure to cut back on oil and gas production and boost investment in renewables as governments race to meet net zero targets.
Wael Sawan, the chief executive of Shell, warned last month that the world is at risk of energy shortages unless more money is invested in drilling for oil and gas.
EnQuest’s two new sites, Bressay and Bentley, are so close to Kraken that they can all be connected to the same production system, based around the giant ship already serving as a floating oil platform for the Kraken field.
EnQuest said Bressay was “one of the largest undeveloped oil fields in the UK continental shelf” with so-called oil-in-place estimated to be between 600 million and one billion barrels.
Oil-in-place measures the total oil in a reservoir but the amount extracted from Bressay is likely to be around 200-300 million barrels.
Bentley, the second nearby field, is thought to be even larger, capable of producing more than 300 million barrels, putting it on a par with Rosebank.
Those amounts are in addition to the 137 million barrels already being extracted from the original Kraken field. It means the cluster could produce more than 700 million barrels of oil.
To my disbelief :
Flatulent cows targeted in M&S net zero push
Retailer to spend £1m in drive to cut 11,000 tons of harmful gases from dairy supply chain
https://www.telegraph.co.uk/business/2024/04/09/marks-and-spencer-cows-flatulence-net-zero-push/
The early cessation of platforms could also see decommissioning liabilities kicking in, at a cost to the exchequer.
RIFT’s analysis noted that North Sea oil and gas had already been in decline prior to the implementation of the EPL.
However, Westwood Energy Research Director Yvonne Telford said: “Oil and gas production in the UK is in decline, but the rate of that decline will be determined by the level of investment to maximise economic recovery from the basin.
“The impact of the EPL may deliver a short-term revenue win to the UK, but it has impacted investor sentiment and therefore in the longer term there is likely to be lower recovery, shorter field lives and therefore less revenues for tax payments.”
Falling investment
Numerous groups have already warned that the EPL is driving them to slash investment budgets and cut jobs.
Ithaca Energy said the EPL has “severely dampened” North Sea investment, warning the firm’s production will drop next year, pointing to its own Greater Stella Area (GSA), along with developments with partners like TotalEnergies’ Elgin-Franklin and Repsol Sinopec’s Montrose/ Arbroath fields as having suffered “deferral or cancellation” on their investments.
The company warned in its full-year 2023 results that it had taken a $500 million impairment against GSA “as a direct result” of the EPL.
Ithaca said the impairment charge for GSA follows the decision not to proceed with further infill drilling at the Harrier field, as “a direct result of the EPL and falling gas prices”.
Harbour Energy reported an $8m loss after tax in the first half of 2023, down from $1bn profit in the same period of 2022, with the company scaling back activities and cutting hundreds of jobs in Aberdeen.
It said it would “re-phase” up to $100m per year of decommissioning spend in the wake of the windfall tax.
EnQuest also reported a loss after tax for the first half of 2023 after seeing a profit in the same period of 2022, citing the impact of the EPL.
And Neptune Energy predicted the EPL would see it take a £53m tax hit.
March’s Spring Budget extended the EPL until March 2029, or until such time that oil and gas prices return to ‘normal’ levels for a sustained period of time.
The UK government also boosted it to 35% in January 2023, up from the original 25%.
https://www.energyvoice.com/oilandgas/north-sea/551429/industry-challenges-short-term-epl-boost-to-oil-and-gas-tax-revenues/
Industry boffins have challenged analysis that the windfall tax will deliver a win for the UK Treasury.
Research from accountancy RIFT has highlighted that tax revenue for the Exchequer hit their highest in the last 25 years due to the Energy Profits Levy (EPL).
However analysts have warned that the long-term harm of the windfall tax will outweigh short-term gains.
During the 2022/23 financial year, official figures show the industry provided around £9.4 billion in revenues for the economy, a 284% annual increase.
The EPL boosted this figure, contributing just over £4bn to the total.
This compares to £2.45bn in 2021/22, which itself was up 225% compared to year before, driven by increasing oil prices in the wake of the Russian invasion of Ukraine.
Bradley Post, managing director of RIFT, commented: “While North Sea oil and gas is far from the only pillar of the Scottish economy, it’s been a historically important one and so the sizable boost in revenues that has come from the Energy Profits Levy will be a very welcome one.
“While some may be calling the death of the industry as a result of the Energy Profits Levy, many more believe that the tax paid is far better off benefitting the Scottish economy than it is sitting in the back pockets of energy provider execs.”
Short-term thinking on windfall tax
However, Welligence Energy Analytics vice-president of operations David Moseley warned that any short-term rise in tax revenues due to the EPL could come at the expense of additional revenues in years to come.
“The introduction of the EPL made companies a lot more uncertain around progressing greenfield and brownfield projects,” he said.
“You’ve got a big increase in tax in the short-term through the EPL, which has effectively made companies quite risk averse, with the sector now quite unstable when it comes to taxation and companies are very uncertain about what the future will hold.
“As a result of that, we’re seeing companies pulling investment. So long term, over the next 10-15 years for example, tax receipts could be less.”
Offshore Energy UK (OEUK) previously predicted that 90% of companies working in the North Sea could cut their investment plans due to the EPL, risking cutting production by 80% by 2030.
Https://www.telegraph.co.uk/news/2024/04/08/evs-electric-cars-green-energy-transport-failure/
Nothing to do with management, simply with the fact this is a London listed stock. Compare FRES share price movement to that of Mexico-focused silver miners listed on Toronto/New York such as Endeavour Silver, First Majestic Silver, Avino Gold and Silver Mines....You see the same huge difference between London listed and New York listed oil companies by the way.
When oil jumped above $90 a barrel just days ago, military tensions between Israel and Iran were the immediate trigger. But the rally’s foundations went deeper — to global supply shocks that are intensifying fears of a commodity-driven inflation resurgence...
https://www.bloomberg.com/news/articles/2024-04-07/are-oil-prices-heading-to-100-this-summer-as-a-global-shortage-takes-hold?srnd=homepage-europe
"Mass closures are not the result of eco-protests, nor because of a lack of demand.
Supply isn’t dwindling either. Over the last five decades oil and gas equivalent to 47 billion barrels of oil have been extracted, but seismic surveys suggest another 25 billion remain.
Instead, operators blame punitive taxes for the rapid pullback, with some facing levies of more than 100pc on their profits."
https://www.telegraph.co.uk/business/2024/04/07/death-of-north-sea-oil-disaster-for-britain/
Falling production has left us exposed to volatile energy prices and the whims of dictators .
Long article....
https://www.telegraph.co.uk/business/2024/04/07/death-of-north-sea-oil-disaster-for-britain/
Hi Romaron, the Thames Water story -interesting article about it in Telegraph- MUST make politicians from both sides aware it is never a good idea to be completely dependent from overseas instances, be it lenders or shareholders, when it is about critical infrastructure/resources. https://www.telegraph.co.uk/business/2024/04/05/we-are-all-at-the-mercy-of-thames-waters-foreign-ownership/
Https://www.telegraph.co.uk/business/2024/04/04/electric-car-demand-slows-petrol-vehicles/
This will have a negative impact on the wider supply chain, and, in the absence of further Government support, potentially also the energy transition and the UK’s net zero ambitions as a result of both the impact on the service sector and workers.
In the upstream acquisition and disposals market, even before the recent announcements buyers and sellers were struggling to agree on valuations.
Valuations of oil and gas fields (and companies) depend on forward views of costs and income, and a key feature of recent transactions has been the presence of significant contingent consideration in deal structures – for example, the buyer paying a premium at a further point in time once profits have become clear, or potentially a payment made to the buyer if circumstances change.
For some transactions – particularly those with high anticipated capital commitments – the potential impact of the different tax scenarios is significant, in some cases turning an “asset” into a “liability”.
Buyers and sellers will, together with their advisors, require to find further imaginative solutions to these valuation difficulties, which is no easy task given the increasing number of variables to such valuations. As ever, creativity will therefore be critical.
https://www.energyvoice.com/promoted/550643/labours-epl-plans-to-have-negative-impact-on-the-wider-supply/
There has been significant attention paid over the past few months to oil and gas taxation in the UK, following Labour’s announcement regarding its intentions for oil and gas taxation, should it form the next UK government.
In summary, Labour has announced plans to: (a) extend the Energy Profits Levy (EPL) the ‘windfall tax’ introduced in 2022 on UK upstream oil and gas producers to 2029; (b) increase the rate from 35% to 38% (taking the headline tax rate to 78%, the same as Norway); and (c) remove what it sees as ‘loopholes’ in the application of EPL, to increase the tax take.
Since the Labour announcement, the current Conservative UK Government has announced an extension of the existing EPL regime by one year to March 2029, the second extension to the original EPL tax.
The ‘temporary windfall tax’ will thus be applying for at (at least) 7 years, long after the windfall price conditions arising from the outbreak of war in Ukraine have abated.
The additional tax rate was also previously increased from 25% to 35%, the cumulative effect of which has been the perception of significant fiscal instability in the UK and a resultant lack of investor confidence.
In March Harbour Energy, the UK’s biggest producer of oil and gas, announced its results for 2023.
As a result of EPL (and the manner in which it treats decommissioning costs) Harbour announced that it was subject to an effective tax rate of 95%. Anecdotally, we are aware that some UK production companies have an effective tax rate of over 100%.
Oil and gas projects often take several years to get from discovery, through to project sanction and then first oil.
To take Rosebank as an example, the field was first discovered in 2004, was approved for development late last year and first oil is expected in late 2026.
Oil and gas investments – whether developments of new fields, or acquisitions of existing assets or production companies – are ultimately valued based on the estimated post-tax cash flows.
The UK was once viewed as a stable and predictable jurisdiction for oil and gas investors.
However, investors are currently faced with uncertainties over the duration of EPL, the tax rate, the availability of investment allowances and the treatment of costs in the calculation of EPL (which will impact the effective tax rate).
Labour’s lead over the Conservatives in opinion polls is averaging around 19%. The perceived high likelihood that Labour will form the next government, and thus that Labour’s announced policies will become law, means that Labour’s proposals are already being ‘priced-in’ to North Sea investment decisions.
In this political environment, it is likely that new projects will be postponed or cancelled and previously announced investments will be reviewed.
@ Asartara : Stifel reduced ITH's target price from 157 to 140 pence. Curious how one single analyst recommendation can have such an immediate impact.
Even green campaigners fear they are damaging the planet, consuming land that could be left to nature.
https://www.telegraph.co.uk/news/2024/04/03/solar-power-tracey-ward-planning-net-zero/
Https://www.telegraph.co.uk/news/2024/04/02/green-energy-net-zero-heat-pumps-national-grid/
Labour will keep beating the dead horse of the "proper windfall tax" no matter if Brent is trading @ $75 or $90/bl.....
Politicians got us by the balls. I fully agree with Romaron : it is not even about environment, it is about taking the money where you easily can take it without causing national anger.
Oil companies in "banana" states of Africa and Latin America are trading at higher valuation metrics than UK oil companies.
Ithaca -planning for growth- is even down over 4% and trading near all-time-lows with a strongly rising Brent price.
Reform UK has pledged to hold a referendum on net zero in a fresh challenge to Rishi Sunak.
Richard Tice, the leader of Reform, said his insurgent party will support a Brexit-style national poll on the 2050 climate target, which he has argued is damaging the economy and voters’ lives.
https://www.telegraph.co.uk/politics/2024/04/01/reform-net-zero-referendum-richard-tice-tories-policies/
Energy Security Secretary Claire Coutinho is quite right: Labour’s promise to decarbonise the electricity grid by 2030 is “dangerous”. It threatens to plunge UK households and businesses into the dark while boosting the Chinese companies on which we will be mainly reliant for supplying all the cables, batteries and other kit we will need to get anywhere close to achieving the target.
But why does she think it will be much different to the Government’s own policy of decarbonising the gird by 2035? Coutinho seems to be asserting that between the years 2030 and 2035 will magically spring up a UK-based steel, copper and battery industry which will somehow undercut the Chinese. Dream on.
The Chinese have already built an insurmountable competitive advantage in building batteries. They have bought up a lot of the mines in Africa and elsewhere which supply the rare metals required to manufacture them. They, along with India, have expanded their steel industries where we have run ours down. Where’s all that steel going to come from, now that the Tory Government has handed the owners of Port Talbot a bung to close down both their blast furnaces and build in their place – eventually – an electric arc furnace which will only be able to do half the job of making the metal?
As for the assertion that the Government’s policy of decarbonising the grid by 2035 will, unlike Labour’s policy, keep the lights on, I wouldn’t count on it if I were you. True, it gives us an extra five years to build the hydrogen plants or other forms of mass electricity storage which would be necessary to support a grid which is fed mainly by intermittent wind and solar.
But given that hydrogen electrolysis plants don’t yet exist at commercial scale, and that battery storage is still horrendously expensive, it doesn’t bode well for the cliff edge the Government has created for itself in 2035. The same is true of the carbon capture and storage plants which the Government has touted as an alternative means of decarbonising the grid – the plan being to fit it to gas power stations. That technology doesn’t yet exist at scale in Britain, either. As with energy storage, it promises to add huge costs and lower efficiency even if it can be rushed through by 2035.
Maybe our Energy Security Secretary has calculated that the Government’s plans don’t really matter because the Conservatives are highly unlikely to win the election anyway. Decarbonising the grid will become Labour’s millstone, so why shouldn’t the Tories spin the conceit that their slightly more relaxed decarbonisation policy would have succeeded where Labour’s is destined to fail?
I’ll tell you why not: because voters are not stupid, and they can work out that what is totally unachievable by 2030 is not much more achievable by 2035. They can see that all these net zero targets are going to push up bills and threaten Britain’s Britain’s energy security.