A windfall tax is a higher tax rate on profits that ensue from a sudden windfall gain to a particular company or industry. There have been windfall taxes in various countries across the world. In 1980, under President Jimmy Carter, the federal government enacted a “windfall” profits tax on the American oil industry in response to skyrocketing gas prices and the recent deregulation of the industry.
Story By Jonathan Leake |The Telegraph| The UK’s largest oil producer Harbour Energy has blamed the Government’s windfall tax after it swung from a nearly $1bn profit to an $8m (£6.3m) loss during the first half of the year.
Harbour Energy, which provides roughly 15pc of Britain’s oil and gas, said the so-called Energy Profits Levy had led to the company facing an effective tax rate of 102pc in 2023.
In its half-year results posted on Thursday morning, which revealed revenues of $2bn, the firm said it plans to shift investment away from the UK, mainly into projects in Indonesia and Mexico.
Around 90pc of Harbour’s oil and gas comes from domestic waters, which makes it particularly vulnerable to the windfall tax, which was introduced by the Government in 2022.
READ MORE: Windfall Taxes Sweep Through The Global Energy Sector
Earlier this year, Harbour announced 350 onshore job cuts, mainly around its base in Aberdeen, again citing the windfall tax as the prime reason.
Linda Cook, Harbour’s chief executive, has warned the windfall tax “disproportionately impacted” UK-focused oil and gas firms.
Following Thursday’s results, Ms Cook said: “We have progressed our strategic investment opportunities outside of UK oil and gas. These have the potential to materially increase our reserve life, support shareholder returns and diversify our company over time.”
As part of its announcement, the company added: “The effective tax rate for the six months ended 30 June 2023 was 102pc, compared to 34pc for the same period in 2022.
“The higher effective tax rate for the six months ended 30 June 2023 is primarily caused by the introduction of the Energy Profits Levy [windfall tax].”
The company was also hit by $16m of charges related to a review of its business triggered by the extra tax.
Harbour’s results also revealed that production fell to 196,000 barrels of oil equivalent per day in the first half of 2023, compared with 211,000 last year.
The business was also hit by a fall in global oil and gas prices as markets adjusted to the energy crisis caused by the Ukraine conflict.
It meant Harbour had significantly lower taxable income during the period at $400m before tax, compared to $1.5bn in the same period in 2022.
Overall, it paid $437m in tax during the six months, less than its tax bill for the first half of last year before the windfall tax on oil and gas companies was introduced.
Cook said Harbour would maintain production from its British offshore platforms and develop planned carbon capture and storage operations. “We remain focused on maximising the value of our UK oil and gas portfolio, advancing our organic development projects and disciplined capital allocation.”
Harbour’s results come a day after rival operator Ithaca warned it was cancelling projects and cutting production because of the “severe impact” of the windfall tax.
Ithaca, which is behind the controversial Cambo oil field, has also told investors it is writing $74m (£58m) off the value of assets as a “direct impact” of the Energy Profits Levy.
