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Harbour Energy, the largest oil producer in the UK and a vocal critic of the windfall tax, will increase spending in the North Sea this year and potentially next as it fears the next government will cut investment deductions.
Linda Cook, chief executive of the London-listed producer, said that, while the company was still determined to diversify outside the UK, there was a “window of opportunity” before 2025. She linked that partly to the large tax breaks for investment embedded in the windfall tax.
“Our UK capex this year is actually a little bit higher than it was last year,” Cook said, adding they were looking at “short-cycle, high-return opportunities”.
“What happens beyond next year is where the uncertainty creeps in,” she said.
Cook did not directly mention the opposition Labour party. However, Labour has heavily criticised the government’s decision to include significant deductions in its windfall tax for producers that invest — in the past year the tax rate on oil and gas producers has increased from 40 per cent to 75 per cent.
Producers can limit the amount of tax paid under the measure, which was introduced in response to soaring household bills during the energy crisis, by as much as 91p in the pound by offsetting it against new investments.
Labour, which has a strong lead in the polls ahead of an expected general election towards the end of next year, has also said it will not license new oil projects if it comes to power. However, it has said it will not reverse those awarded by the current Conservative government.
Cook said the company was continuing to lobby the government over including other investments and expenditure in the deductions available under the windfall tax. Among the deductions it would like included under the measure — formally known as the Energy Profits Levy (EPL) — are investments in carbon capture and storage projects, and decommissioning costs.
Harbour is involved in two CCS projects in the UK that were recently awarded government backing to proceed, including the Viking project on Humberside and Acorn in Aberdeenshire.
“We need the cash flow in order to do that and if you’re taking it all away with the EPL it makes it more difficult, so we continue to lobby them on that,” Cook said.
Cook said the company would continue to pursue potential mergers or acquisitions with a view to diversifying its operations outside the UK, partly as a result of the EPL.
The company said the windfall tax had made securing access to credit more challenging, with its reserve-based lending facility shrinking to $1.1bn billion compared with $2.7bn previously. However, Cook said the company retained good access to liquidity.
Harbour had been reported earlier this year to have held preliminary talks with Talos, a US-based producer. But a person familiar with the conversations said a tie-up between the two companies was no longer being pursued.
The company has reduced its net debt to near zero, from $2.9bn in 2021 when it completed its merger with Premier Oil.
Referring to outside suggestions of potential M&A targets, Cook said Harbour was getting a lot of “inbounds” and that the company was reviewing numerous options.
“People know we do have a strategy that’s based on M&A,” Cook said.
Half-year results were broadly in line with expectations, with profits before tax falling to $400mn from $1.5bn in the same period last year, largely because of lower commodity prices. The company reported a small post-tax loss of $8mn driven largely by a tax payment under the EPL of $302mn.
“Our capex will be increasingly diversified outside the UK,” Cook said. “But that doesn’t mean we aren’t pursuing these short-cycle, high-return options in our UK portfolio.”