Harbour Energy's Job Cuts: A Hit in the Oil and Gas Sector
Energy company Harbour Energy plans to lay off 250 workers, criticizing Labour party's Rachel Reeves for her stance on the industry.
The London-based oil and gas giant, Harbour Energy, has taken a swing at the government's so-called "punitive fiscal position" following the announcement of a staggering 250 job cuts in Aberdeen. The company, which rules the roost as the North Sea's largest oil and gas producer, has pinned the blame on the brutal tax regime and a troublesome regulatory environment.
Harbour's UK managing director, Scott Barr, broke the news, stating, "We're launching a review of our UK operations, which we expect will lead to the shedding of around 250 onshore roles in our Aberdeen-based business." He further explained that this unpleasant necessity stems from the government's harsh fiscal stance and an daunting regulatory landscape.
Barr also highlighted the delays in the ramp-up of carbon capture projects in the UK as another contributor to the axe falling. To elaborate, Harbour is weighing the resources necessary for its Viking carbon capture and storage project. The project's progress past the front-end engineering design phase and the recent securing of a Development Consent Order has been slow due to repeated holdups in the government's Track 2 process.
These job cuts have sent shockwaves throughout the city. The Aberdeen and Grampian Chamber of Commerce (AGCC) presented Harbour's decision as a punishing blow, coming hot on the heels of a layoff of some 350 UK onshore jobs in the previous year.
The Energy Profits Levy: High Stakes and Uncertain Future
The Energy Profits Levy, colloquially known as the windfall tax, has earned itself a contentious reputation ever since it was first imposed on oil and gas producers in 2022. Targeted at addressing high commodity prices following Russia's invasion of Ukraine, the EPL initially set the tax rate at 25%. Initially meant to be a temporary measure until 2025, the EPL has undergone numerous modifications and now sits at 38% for profits arising after November 2024, with the levy extended until March 2030[3][5]. The investment allowance, a benefit that encouraged companies to invest, has been rescinded, save for decarbonization expenditure[5].
These changes have had a profound impact on oil and gas production in the UK, with the removal of investment allowances and increased tax rates leading to reduced investment, resulting in lower production levels and potentially dwindling tax revenues over time[1][5]. The industry also predicts that as much as 3 billion barrels of oil could go untapped due to current tax policies, translating to a whopping £150 billion boost for the UK economy if produced domestically[1]. Instead, the UK may resort to costlier imports with comparatively higher carbon footprints.
In the grand scheme of things, the government has taken steps to engage in discussions regarding the EPL and the North Sea's energy transition, aiming to support workers in their transition to clean energy roles[4].
Impact on Companies: Navigating the Toxic Waters
Companies like Harbour Energy, which operate in the oil and gas sector, face the brunt of the EPL. Higher tax rates and diminished investment incentives have reduced profitability margins, potentially impacting their ability to fund fresh projects or sustain existing ventures. Additionally, the extension of the EPL up until 2030 introduces uncertainty and may deter further investment in the UK oil and gas sector, as capital may migrate towards more hospitable tax zones[1][3].
- The harsh tax regime induced by the Energy Profits Levy, along with a troubling regulatory environment, has led Harbour Energy to consider revising its finance strategy for UK operations, potentially affecting their ability to fund new transport projects in the oil and gas sector.
- The increase in tax rates and the removal of investment allowances due to the Energy Profits Levy might negatively impact the business models of companies like Harbour Energy, as higher taxes could strain their resources for financing and sustaining their onshore transport operations in the oil and gas sector.
