Britain’s Tory party is not good for much these days, except, perhaps, for providing useful lessons on how not to do things.
The U.K., like just about every other Western country, is wrestling with higher energy costs. An obvious move, therefore, would be to encourage oil and gas companies to invest more in North Sea production.
This is not one of those obvious moves (via the Washington Post, May 27):
Britain’s Conservative government announced Thursday a 25 percent windfall tax on the profits of oil and gas firms that would be used to support $19 billion in assistance for low-income households struggling with a sharp spike in the cost of living.
And so what has the response been?
I think you can guess (if you don’t already know).
North Sea oil and gas producers have told UK chancellor Rishi Sunak they are rethinking projects in Britain because of a new 25 per cent windfall tax on their profits, branding the policy “anti-investment” and “anti-business”.
In the strongest protest yet against the government’s “energy profits levy”, Brindex, an organisation that includes privately held and listed oil and gas producers, warned that the shock of its “sudden introduction” at the end of May is “very real and has already had a dramatic effect” on the industry.
The criticism from smaller and medium-sized producers — including some held by private equity groups — comes after initial assurances from larger energy companies such as BP that the windfall tax will not limit investment significantly.
Independent oil and gas companies became a powerful force in the UK North Sea after the oil price crash of 2014 as companies such as Harbour Energy, Neo Energy and Siccar Point Energy scooped up assets from retreating majors that wanted to refocus their spending on cheaper regions. Many are now among the top 10 producers in UK waters.
One thing that businesses need if they are to deploy capital is a degree of certainty about the investment environment in which they are operating, so this (via The FT) was an extra twist of the knife:
Many [oil companies] had been expecting just a one-off hit, but BP attacked the chancellor for introducing a multiyear proposal that will remain until December 2025 unless oil and gas prices “return to historically more normal levels” in the meantime.
The vague wording there is a gift to a greedy (and/or desperate) government, but it’s the last thing that any company wondering whether to commit capital should want to see.
Solution: Don’t commit that capital.
According to the FT, the chairman of an association of smaller oil and gas producers has written to Britain’s finance minister to complain. Apparently, his complaint included a surprise that such a tax should happen under a Conservative government.
Not really. The Tories these days are a party of the center-left, somewhat akin to Merkel-era Christian Democrats. That they should introduce this tax was about as predictable as the damaging reaction to it.