Moody’s Investors Service sees little relief for UK oil and gas producers, Maria Chiara Caviggioli, associate vice-president and analyst at the firm, said in a statement on what changes in the tax could mean the UK energy price for the sector.
“The UK Government’s announced introduction of a minimum price linked to the Energy Price Levy represents a development consistent with what UK oil and gas producers have been demanding since the previously announced Energy Price Levy reviews in mid-November 2022,” Caviggioli said in the statement. , which was sent to Rigzone.
“While the established price thresholds of $71.4/barrel for oil and £0.54/therm for gas are not too far from current spot prices… the fact that oil and gas prices should of trading below these levels for a long period of time. , two consecutive quarters, in order to bring about a reduction in the applicable rate, greatly challenges the advantages associated with the presence of the same floor prices,” added the analyst
“Given the highly volatile nature of commodity prices and the general expectation that they will remain above indicated price floors, we see little relief for oil and gas producers and no real improvement in terms of visibility, across case, possibly higher uncertainty, as expected, the reduction in tax payments, borrowing capacity and liquidity that were restored to the level of the introduction of the energy profits tax and greater support for long-term investment decisions,” continued Caviggioli.
Moody’s Investors Service analyst also noted in the statement that the high frequency of changes to the Energy Profits Levy seen to date “further contributes to the increasingly uncertain operating conditions on the UK continental shelf”.
Also commenting on the latest changes to the Energy Profits Levy, Christy Wilson, tax lawyer at Katten UK, told Rigzone that, “perhaps if companies are no longer making windfall profits, it seems logical to remove the levy”.
“Importantly, the government still intends to keep the levy, but would only remove it if there was a sustained decline in oil and gas prices – the OBR does not expect this sustained decline in prices to trigger before 2028,” Wilson said. added
“Therefore, for now, it is reasonable to conclude that the tax will remain unchanged,” Wilson continued.
In a statement published on his Twitter page, David Duguid, Scottish Conservative MP for Banff & Buchan, described the minimum price of the Energy Profits Levy as “a welcome step in the right direction to provide certainty to a vital industry for to energy security and the energy transition in North East Scotland and the UK in general”.
He went on to note that the development was “a well-informed decision by HM Treasury, who I have been engaged with since the Energy Profits Levy was first introduced”.
“[The] The Energy Profits Levy must only be a temporary measure and I am grateful to HMT Minister Gareth Davies for coming to Aberdeen to engage directly with the industry,” he added in the statement.
The UK government recently announced new changes to oil and gas taxeswhich he said are meant to protect British energy security and jobs.
In a statement published on its site, the government noted that the Energy Profits Levy, which it noted places a marginal tax rate of 75 percent on North Sea oil and gas production, will remain in place for the next five years while oil and gas prices. they remain higher than historical norms, but he added that the tax rate will return to 40 percent “when prices consistently return to normal levels over a sustained period.”
The tax rate for oil and gas companies will only return to 40 percent if average oil and gas prices fall to or below $71.40 per barrel for oil and £0.54 per therm for gas , for two consecutive quarters, the government revealed in the statement. That level is based on 20-year historical averages, according to the government, which noted that, in line with the forecast by the independent Office for Budget Responsibility, the mechanism will not be triggered until before the expected end date of the tax in March 2028.
To contact the author, please send an email andreas.exarcheas@rigzone.com
