Home Commodities Harbor Energy: Unexpected UK tax has unintended consequences

Harbor Energy: Unexpected UK tax has unintended consequences

by SuperiorInvest

Harbor Energy needs its own safe harbor. Britain’s leading oil and gas producer has announced cuts to investment and jobs as Jeremy Hunt’s energy tax hits its bottom line. The blunt design of this charge deals more collateral damage.

It is easy to tarnish Harbor Energy and its North Sea brethren with suspicion of posturing. After all, they benefited from the boom in commodity prices. Harbor’s free cash flow tripled to $2.1 billion. With such an influx of money, many may wonder why they envy the taxpayers a share of the spoils.

But oil exploration is a long game. And Britain’s energy windfall tax is a crude tool that could affect future investment.

One problem is that it’s not really associated with windfalls. Additionally, Hunt’s 35 percentage point gain raises the tax rate up to 75 percent by 2028. And while the tax is a certainty, high oil and gas prices are not. Projects would generally look less attractive and marginal ones might not be evaluated in the event of a drop in energy prices.

This applies especially to investments with a shorter implementation period. The government has attempted to protect new oil and gas projects by allowing explorers to offset capital expenditures against taxable income. But any wells that could be quickly connected to existing production assets are even worse off. The additional tax more than covers any benefits from the investment allowance, says Wood Mackenzie.

Projects with a longer preparation time look more attractive. After 2028, they would now benefit from the investment allowance without paying additional taxes. However, the loss of the UK’s reputation for fiscal stability threatens the long-term visibility of these plans.

Harbor Energy – with only a limited number of short-term investment opportunities – will be among those most affected by the tax. Major companies such as TotalEnergies, a major British producer in the North Sea, also disagree.

Expect to wail over unexpected taxes. If North Sea energy production subsequently suffers, howls may follow from elsewhere, including consumers.

Lex is the FT’s incisive daily column on companies, sectors and asset classes for premium subscribers. Expert writers in London, New York, San Francisco and Seoul offer concise, witty commentary on equity trends and important trades. Click to see more

Source Link

Related Posts

%d bloggers like this: