North Sea firm cuts UK production as windfall tax backfires

North Sea oil and gas producer Ithaca Energy said the windfall tax has forced it to slash production in the UK.

The FTSE 250 company said it was writing off £58m as a direct impact from the levy, pushing it to scale back plans for the second half of 2023 and into 2024.

Ithaca said the energy profits levy has already led to the ‘deferral and cancellation of certain 2023 and 2024 projects’ including in areas such as the Greater Stella, Montrose Arbroath and Elgin Franklin.

Warning production next year is ‘expected to be lower’ than this year, the company added: ‘New investment has been severely dampened across the UK North Sea in 2023, with operators delaying or cancelling projects.’

It said North Sea operators ‘are reconsidering the attractiveness’ of investment in the UK.

The tax was introduced last year by Rishi Sunak when he was chancellor after global energy prices spiked. It imposed a 25pc tax surcharge on profits, raised to 35pc by Jeremy Hunt after he took over at the Treasury.

On top the hefty charges already faced by North Sea operators, the levy imposes an effective 75pc corporate tax rate on the industry.

Ithaca executive chairman Gilad Myerson said: ‘The levy continues to have a direct impact on investment in the UK North Sea and Ithaca’s own investment programme across its diverse high-quality operated and non-operated asset base.’

His comments came as the energy group revealed profits fell to £196.7m in the six months to June from £1.38bn a year earlier. Revenue was also down 6.7pc to £990m.

In a bid to keep shareholders sweet, Ithaca announced another £104m dividend payment.

It is now planning a total dividend of £316m for the full financial year of 2023. But its shares fell by 5.4pc, or 8.8p, to 155p.

The windfall tax has been hugely unpopular for the oil industry, which argues that it discourages investment in the UK.

Linda Cook, the boss of Harbour Energy, the largest oil producer in the North Sea, has said that its profits last year were ‘all but wiped out’ by the tax, forcing it to cut hundreds of jobs. And London-listed Enquest has halted drilling at its Kraken oilfield because of the levy’s imposition.

The Mail on Sunday last weekend revealed the Government is looking to woo banks and other financial institutions to secure support for North Sea oil and gas projects.

Treasury officials have invited several major banks to a meeting as part of a charm offensive to convince them to restart investments in the region, which has seen its profits hammered by the windfall tax.

The Government has tried to draw firms back, with Sunak last month promising to grant hundreds of drilling licences from the autumn.

Andy Mayer, energy analyst at the free market thinkthank IEA, said: ‘Ithaca is slashing investment and bumping dividends in direct reaction to the UK’s foolish taxes on the North Sea. Not just the high rates and complex allowances imposed by the Conservatives, but in fear of worse from Labour.’

Labour has said it will end new gas and drilling licences in the North Sea if it wins the general election expected next year.