UK oil and gas operator Ithaca Energy will reduce investment across its portfolio as a result of the windfall tax on the energy sector in the UK, which will also impact its expected production in 2024.
Ithaca on Wednesday said the Energy Profits Levy (EPL) that the UK government brought in last year at the height of the global energy crisis is denting appetite for investment.
“As a direct result of the Energy Profits Levy, investment across our operated and non-operated portfolio has and will reduce,” Ithaca said in its half-year results statement.
The company noted “deferral and cancellation” of a number of projects initially slated for this and next year, which would in turn impact its production outlook. Next year’s hydrocarbon output is expected to be below 2023 production as a direct consequence of the aborted projects due to the EPL.
Ithaca produced 75,800 barrels of oil equivalent per day in the first half this year, against 66,700 boepd in the same period of 2022. Full-year 2023 production guidance is between 68,000 and 74,000 boepd.
The UK government in May 2022 brought in a windfall levy to target the soaring profits earned by oil and gas producers and, in November’s Autumn Budget, UK Chancellor of the Exchequer Jeremy Hunt increased the levy to 35% of profits, applicable from 1 January 2023. This adds to the existing tax rate of 40%, bringing the total marginal tax rate to 75%.
In January to June, Ithaca had EPL charges of $223 million.
“The Energy Profits Levy continues to have a direct impact on investment in the UK North Sea and Ithaca Energy’s own investment programme across its diverse high quality operated and non-operated asset base,” executive chairman Gilad Myerson said.
The company said investment in the UK North Sea basin has “severely dampened” this year as a result of the temporary regime.
Competition for capital has led to investment migrating internationally to other jurisdictions, it added.
In Ithaca’s own portfolio, the company has deferred or cancelled projects in the Greater Stella Area, Montrose Arbroath Area and Elgin Franklin Area offshore the UK.
The reduced investment will mean production from Greater Stella is forecast to be 5,000 boepd lower in 2024. The company ascribes this directly to the wider effect of the EPL on investment appetite.
In June, the UK government brought in some amendments to the initial windfall tax regulation, establishing a floor based on wholesale energy prices. If oil and gas benchmarks were to fall below a set level for a sustained period, the tax rate applied would return to 40%, or what it was before the EPL was introduced. The move was greeted with cautious approval by the industry.
Ithaca Energy has interests in six of the top 10 assets by reserves on the UK continental shelf, and significant stakes in two of the three largest undeveloped fields — Cambo and Rosebank.
Its portfolio of producing assets and brownfield and greenfield development opportunities includes Marigold, Fotla and Tornado, and infill drilling at the Captain, Alba, Montrose, Schiehallion and Mariner fields.
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