Windfall warning

TotalEnergies cuts North Sea investment by 25%

TotalEnergies is one of the region’s biggest players

French exploration company TotalEnergies will cut its investment in British North Sea oil and gas projects by a quarter next year in response to the UK government’s windfall tax on the sector.

TotalEnergies is the British North Sea’s second-biggest oil and gas producer, according to Woodmac data, and had originally planned to spend £500 million ($613m) in the region next year, a spokesperson said.

However, this will now be reduced following the decision by the UK Government to hike the energy profits levy to plug a gap in the public finances, its British exploration and production chief Jean Luc Guiziou said.

The tax is now levied at 75%, making it among the highest in the world, prompting Shell and Equinor to also evaluate their investment plans.

“For 2023 alone, our investments will be cut by 25%,” Mr Guiziou. He said that in its current form – without a mechanism to reflect any falls in oil and gas prices – the windfall tax will particularly affect short-term investments such as infill wells near existing production. One project that will be axed is an infill well on the Elgin field.

“The energy industry operates in a cyclical market and is subject to volatile commodity prices. We believe that the Government should remain open to reviewing the energy profits levy if prices reduce before 2028,” Mr Guiziou said.

Offshore Energies UK, the trade organisation, said this latest report follows its warnings to government that the UK must invest in new oil and gas wells across the North Sea.

It has told ministers that, with 2,100 wells destined for decommissioning by 2032, new sources of oil and gas are needed, or the UK’s production will plummet – and the nation will become increasingly dependent on imports.

Deirdre Michie, chief executive of OEUK, said: “The government has increased the Energy Profits Levy it introduced back in May. This means our headline rate of tax in the UK will be 75% from January – a step that is undermining investor confidence in the North Sea basin.

“Our industry was planning to invest £200 billion in the broader energy sector – this includes low-carbon solutions – by 2030. This would help to ensure that the UK can meet its net-zero and climate goals and boost its energy security while we make that low-carbon transition.

“But, as these latest reports show, these tax changes really do jeopardise this and the onus is now on government to help build back investor confidence if we are to sustain these opportunities moving forward.”

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