Oil and gas companies in the UK are facing significant challenges due to government tax policies that they described as “punitive.” According to Brian Gilvary, the chair of Ineos Energy, these tax measures are forcing companies to look for opportunities outside the UK.
Ineos Energy, which is part of the chemicals group Ineos, recently invested $3 billion in US assets instead of focusing on projects in the North Sea. Gilvary expressed disappointment with the current tax environment, stating that it has made expansion in the UK nearly impossible, particularly in the gas sector.
Gilvary likened the UK’s oil and gas tax system to the “most unstable fiscal regime in the world.” He noted that the introduction of the Energy Profits Levy in 2022, in response to rising oil prices after Russia’s invasion of Ukraine, halted several transactions planned by Ineos Energy. The levy, initially set at 35 percent, was increased to 38 percent last October, bringing the total tax rate for North Sea operators to an astonishing 78 percent, while also eliminating a 29 percent investment allowance.
As a result of these tax increases, Ineos has shifted focus to the United States, where the company has completed three deals in quick succession. Gilvary mentioned that in the past 15 months, they investigated two potential investments in the UK, but found them unfeasible due to the unfavorable tax climate, prompting a move of resources to the Gulf of Mexico instead.
The exodus from the North Sea is not unique to Ineos. Companies like US-based Apache have announced plans to exit their North Sea operations by 2029, citing the challenging tax conditions. Major players, including Shell and Equinor, have gone so far as to merge some of their UK assets to enhance tax efficiency.
Industry-wide, there is a growing trend for oil and gas producers in the UK to seek new opportunities abroad. Gilvary noted that many companies are attempting to find partners for ventures but are often deterred from moving forward due to the tax burdens. He emphasized the limitations imposed by the current licensing system, which prevents companies from extending the life of existing operations and forces them into a phase of simply extracting what they can.
While Gilvary hopes that tax rates will eventually be reduced, he pointed out that companies may be hesitant to invest again when conditions become more favorable. According to a report by Deloitte, the overall market value of the UK’s top 25 independent oil and gas companies has significantly declined from £27.8 billion in 2011 to just £9.8 billion at the end of last year.
In a clear reflection of the current climate, Kosmos Energy, an independent oil explorer based in New York, recently decided not to move forward with a proposed acquisition of Tullow, a UK-based producer focused on West Africa. Tullow’s value has plummeted from a peak of £14.5 billion in 2012 to roughly £342 million today, overshadowed by a net debt of $1.7 billion.
Overall, the outlook for the UK oil and gas sector remains uncertain as producers grapple with high taxes and limited opportunities in the domestic market.