Page 5 - EurOil Week 23 2022

EurOil COMMENTARY EurOil

Unveiled on April 12, the government’s new exposed to the UK Continental Shelf (UKCS).
energy strategy put security and affordability of “Although difficult to predict how much
energy at front and centre, stressing the need to incremental tax will be payable by each oil
support the development of domestic oil and gas major, rising tax payments weaken metrics and
fields, as well as calling for a substantial expan- result in reduced surplus cash flow available for
sion in renewable power generation. shareholder remuneration or debt reduction,”
Michie said investor confidence depended Moody’s said in a research note.
on predictable taxation, and so the introduction Smaller upstream players will be worse off, as
of new one without formal consultation would it will take a greater toll comparatively on their
undermine investment, including in offshore cash flow generation and hamper their ability to
wind and other low-carbon energies. OEUK invest.
estimates that the industry was already due to Moody’s also viewed the tax as negative
pay GBP7.8bn in tax this year without the wind- from an environmental, social and govern-
fall levy, noting this was a 20-fold increase on the ance (ESG) perspective because of the invest-
tax they had paid two years ago. ment incentive, as “prolonged investment into
“This is a disappointing and worrying devel- traditional oil and gas upstream activities will
opment for industry, the shockwaves of which likely delay the transition to a lower-carbon
will be felt in offshore energy jobs and commu- economy and further spur societal opposition
nities, and by consumers, for years to come,” she to drilling activities.”
said. Stock prices for many North Sea opera-
Analysts at Moody’s agreed that the tax would tors slumped on the news. North Sea-focused
create uncertainty over investment decisions. EnQuest saw its share price drop by 8.5% in the
Large integrated oil and gas companies will be hours after the government’s announcement, for
less affected by the rise than smaller ones more example. ™

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