Harbor Energy boss warns bump tax hike will hit oil investment at wrong time

Unlock Editor’s Digest for free

FT editor Roula Khalaf selects her favorite stories in this weekly newsletter.

The head of Harbor Energy has slammed Britain’s move to hike windfall taxes on oil and gas producers, warning it dealt a further blow to the country’s attractiveness to investors in a sector he said would remain vital to the economy for decades to come.

Linda Cook, a critic of the UK’s energy profits tax when it was introduced by the then chancellor Rishi Sunak in 2022, has largely avoided talking about the issue in recent months, even as industry colleagues attacked the Labor government for that he raised it and sought to eliminate the investments. allowances for companies.

But she said the “hurdle to attract investment to the UK” would now be higher and that “the tax regime in many other countries – in all the other countries – where we will have a presence will be more attractive” than the company’s domestic market .

“The thing that I was scratching my head about the most,” she told the Financial Times, was that “everyone understands that the UK is going to need oil and gas for many years to come, so why doesn’t it look like we want to use our own? It is better for investment, for energy security, for tax revenues, the trade balance and emissions.”

The Labor government announced over the summer that UK energy profits tax would rise by 3 percentage points from November, taking the sector’s total tax rate to 78%. It also extended the tax by a year until 2030 and removed allowances that allowed companies to offset investment spending against their tax bill.

Cook’s comments came in a week when Norway’s Neo Energy said it would slow investment in the UK as tax policy made projects uneconomic, and industry body Offshore Energies UK warned the one-off levy hike would cost the economy £13bn pounds in the second half. of the decade.

Harbor on Tuesday completed an $11.2 billion takeover of Wintershall Dea’s oil and gas assets from German chemical company BASF, turning the UK company into an international player with a presence in countries from Argentina to Norway.

The biggest ever deal for Harbor will reduce its reliance on the UK North Sea to around a third from around 90%, although it will remain the UK’s largest producer in the region.

The deal, announced in December, was complicated by the involvement of a co-owner of the assets, investment firm LetterOne, which is backed by Russian oligarchs Mikhail Fridman and Petr Aven, who are subject to Western sanctions.

Cook said she was excited about the acquisition of assets in Norway, which she had once thought were out of Harbour’s reach, and that the company still had the strength to do more deals as oil majors became “motivated sellers” of assets after who have concluded their own mega-deals. .

The deal transformed Harbour, which had no production when it was founded in 2014, into a company that will outbid independent UK North Sea producers and instead count Norway’s Aker BP among its competitors.
and Houston-based Marathon Oil, which agreed to be bought by ConocoPhillips.

Cook said the deal would more than double the company’s oil and gas production from assets in Norway, Germany, Denmark, Argentina, Mexico, Egypt, Libya and Algeria.

A surge in deals in the sector, driven by U.S. consolidation from late 2023, has led to deals including Chevron’s deal to buy oil and gas producer Hess for $53 billion and ExxonMobil’s acquisition of shale producer Pioneer Natural Resources for $64 billion.

Asset sales by major oil and gas companies could provide Harbor with an opportunity to repeat a growth strategy that has made it a dominant player among independent companies operating in the UK North Sea.

The upstart bought $5.7 billion worth of assets from Shell and ConocoPhillips between 2017 and 2019. Similarly, its biggest deal was made possible by BASF’s desire to exit upstream oil and gas.

“There are still assets that become available from time to time from the oil majors, particularly after they process their own major acquisitions,” said Cook, a former Shell executive who spent nearly three decades at the company. “There may be some opportunities that come out of that.”