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Banks are cutting back on loans to small North Sea oil and gas producers after the UK government increased and extended windfall taxes on fossil fuel companies in November, the energy industry has warned.
Banks are reassessing the amount they are willing to lend to UK North Sea producers under credit facilities that are linked to the value of their oil and gas reserves, according to trade bodies.
Brindex, which represents companies such as London-listed groups Harbor Energy and Ithaca Energy, estimates that small and medium-sized oil and gas producers in the UK currently rely on around £14bn of borrowing under so-called reserve-based credit facilities.
“Nearly all” companies that rely on reserve-based financing, both for working capital and to fund new investments, are likely to be “very negatively affected” by changes to the UK’s energy profit levy on oil and gas producers, the government’s autumn statement said. , said Robin Allen, president of Brindex.
Chancellor Jeremy Hunt angered North Sea oil and gas groups as he increased the energy profit levy from 25 per cent to 35 per cent, extending it until the end of March 2028. Earlier this levy was to be withdrawn. At the end of 2025.
It was unveiled in May by Rishi Sunak, when he was chancellor, to target the windfall profits many oil and gas producers were reaping from a surge in commodity prices following Russia’s invasion of Ukraine. Revenue from the levy will help to fund state assistance to households and businesses with their energy bills.
Allen said the problem with the reserve-based credit facilities came in particular because of the “unnecessary” withdrawal by the government in May that repayments would be phased out before 2025 if oil and gas prices fell to “historically more normal”. levels”.
“While the normal level was never defined, those words allowed banks to imagine what the normal level would be,” Allen added.
Deirdre Michie, outgoing chief executive of OEUK, the trade body for North Sea oil and gas companies, said some groups were facing cuts of up to 50 per cent in their reserve-based lending facilities, which are regularly reviewed by banks.
Michie, who left OEUK at the end of December after eight years at the helm, said the energy profit levy hike was a “tax too far” and had “really undermined investor confidence to a level I haven’t seen in my time here.”
Energy groups are pushing for a fresh commitment from the government to remove the levy if oil and gas prices fall significantly – which raised their headline aggregate tax rate from 65 percent to 75 percent.
The issue of reducing bank lending was raised with Hunt during a meeting with oil and gas industry executives in Edinburgh earlier this month, people briefed on the talks said.
The Treasury declined to comment on issues related to bank lending. It said the energy profit levied “maintains a balance between the cost of funding livelihood support for households and businesses, while encouraging investment to promote energy security”.
It added that it had also introduced a new investment allowance, which would allow companies to reduce their tax bill if they raised more funds in oil and gas projects in UK waters.
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