02 September 2024 , 16:12
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Battle ahead for Labour as it introduces higher taxes and tougher environmental rules on producers
An oil and gas company has slowed down work on a large North Sea oilfield, citing uncertainty over the Labour government’s approach to fossil fuels.
The Norwegian-owned Neo Energy said it had decided “to materially slow down investment activities across all development assets in its portfolio”, citing the prospect of higher taxes and tougher environmental rules.
Neo’s projects include the Buchan Horst oilfield, about 70 miles north-east of the Aberdeenshire coast in Scotland. The field had been due to start production by the end of 2027, with an estimated 162m barrels of oil equivalent.
The decision highlights a battle ahead for the Labour government, which came to office with a pledge to raise taxes on North Sea producers to fund a rapid transition to green electricity generation.
The energy secretary, Ed Miliband, last week decided the government would not defend against legal challenges brought by environmental groups about two other North Sea projects, throwing them into further doubt.
Greenpeace and Uplift had brought judicial reviews against the decisions, arguing that ministers had not properly considered whether they were compatible with the UK’s legally binding targets to reach net zero carbon emissions.
The court in June agreed that government decisions must take into account “scope 3” emissions – those produced from actually burning oil and gas – as well emissions from production.
The energy department said it would consult on new environmental guidance, with details not due until spring. Neo said that had delayed its project, while tax rises “clearly have a negative impact on the economics and overall viability of a project such as the Buchan Horst”.
It added: “In recent weeks the government has announced a number of measures which have materially increased the level of uncertainty in relation to the UK’s oil and gas sector and investment decisions in this context are extremely challenging.”
Neo owns 50% of the Buchan Horst project, while Serica Energy and Jersey Oil & Gas own 30% and 20% respectively in a joint venture. The partners had predicted the costs of developing the oilfield would be between £850m and £950m.
The share price of Jersey Oil & Gas slumped by 20% on Monday.
Andrew Benitz, the Jersey chief executive, said: “Homegrown energy should always trump imports, creating domestic economic growth, jobs and valuable UK tax receipts.” North Sea oil is generally sold into the global market.
Neo Energy – from “new European offshore” – was founded in 2019 to explore the UK continental shelf. It is backed by Hitec Vision, a Norwegian oil investor. The company had grown by buying out projects from France’s TotalEnergies and America’s ExxonMobil, among others. The purchases made it one of the top five North Sea oil producers.
The announcement came on the same day that the industry’s lobby group, Offshore Energies UK, published analysis that claimed increases to the energy profits levy – the windfall tax on North Sea producers – could result in the loss of £12bn in tax receipts and 35,000 jobs.
However, the report did not take into account the costs to the UK and the world of continued emissions of carbon into the atmosphere. The International Energy Agency, a respected forecaster, in 2021 said the world could not afford to allow any new oil, gas and coal exploration and production if it were to reach net zero carbon emissions by 2050 – a target that would avoid the most devastating climate impacts.
The energy profits levy was first introduced by the Conservative government in 2022 when oil and gas producers were enjoying huge earnings as Russia’s full-scale invasion of Ukraine caused a global rise in prices.
Labour has said it will increase the headline rate on the energy profits levy by three percentage points to 78%: that is comprised of the 40% standard tax rate, plus a 38% windfall tax.
Douglas Ross, the leader of the Scottish Conservative party, on Monday said: “Labour’s reckless policy on North Sea oil and gas would undermine energy security and confidence in the sector.”
The Department for Energy Security and Net Zero was approached for comment.