French oil giant TotalEnergies has become the first major North Sea operator to cut investment as a direct result of Rishi Sunak’s windfall tax.
The €157bn (£134bn) company is to reduce planned spending on new wells by a quarter next year as the levy forces drilling businesses to reexamine their plans.
Its decision will be regarded as a blow for the Prime Minister, who said earlier this year that it was “vital we encourage continued investment by the oil and gas industry in the North Sea” to help protect energy security from competing foreign powers.
Total is understood to be pulling planned investment worth about £100m – 25pc of previously planned spending – with proposals now axed to drill an additional well at its Elgin gas field about 200 kilometres east of Aberdeen.
The Paris-based business is the North Sea’s second largest operator, with fields sprawled from its centre up to the Shetland Isles.
One industry source said this evening that while the Elgin well project in itself was relatively small, the decision by Total was a “big deal… and something the government should be very worried about”.
Jean-Luc Guiziou, Total’s UK country chairman, said the windfall tax punishes short-cycle investments such as these additional “infill” wells, which are a vital tool to sustain production at existing fields.
He said: “A competitive and stable fiscal and regulatory regime is vital to investment in critical energy and infrastructure projects that will support the UK’s security of supply and net zero ambitions.”
The windfall tax was first introduced in May when Mr Sunak was chancellor, and was increased at the Autumn Statement in November after he became the Prime Minister.
North Sea oil and gas profits are being taxed at 75pc until 2028, up from the normal level of 40pc, as ministers attempt to claw back what companies make from higher wholesale prices so they can fund help for households.
The FTSE 100-listed business Shell last week said it was reviewing plans to invest £25bn into Britain’s energy system, ranging from renewables to oil and gas projects. David Bunch, Shell’s UK chairman, said the tax “brings a strong headwind”.
Known as the energy profits levy, it includes generous investment allowances but the extent to which those will lessen companies’ liabilities depends on what stage a project is at and how long it will take to produce.
