UK taxes on oil and gas profits have risen from 40% to about 78% in the past three years, prompting several energy companies to think about pulling out of the country.
North Sea gas company Serica Energy says it is considering pulling out of Britain and look at establishing itself in Nordic countries such as Norway, because of the UK’s increasingly heavy tax regime.
If so, this could be a significant blow to Britain’s energy sector, which has seen several offshore energy companies exit the country following steep tax hikes.
Serica Energy currently accounts for between 41,000 and 46,000 barrels of oil per day, as well as about 5% of gas supply in the UK.
The UK’s attractiveness as a drilling destination has been falling recently, following taxes on UK oil and gas profits being raised from 40% to about 78% in three years.
Now, with UK Chancellor Rachel Reeves hinting that more tax rises could be seen in the upcoming Budget, companies have started looking at exit plans from Britain.
The best place to go?
For companies such as Serica Energy, which purchases older oil and gas fields in the North Sea and turns them around in order to start generating revenues again, Norway is seen as a good alternative to Britain.
This is because of the relative ease of setting up a similar business model in Norway, especially given its huge offshore energy market and strong network of suppliers. Norway also has extensive experience in the oil and gas industry, and is highly renowned for its technology, operational efficiency and stable business climate.
Not only that, but it also has double tax treaties with a number of other countries, which can be attractive for companies looking to expand globally.
Serica Energy says it is looking at other countries as well around the North Sea as potential options for relocation.
Serica Energy chairman David Latin was quoted by The Telegraph as saying: “The consequences of being a purely British-based company are horrific at the moment.
“Just look at what happened on the day that the Labour manifesto was announced. There was hardly any impact on the share price of the oil and gas giants because their profits are made abroad.
“But for small UK-based companies like ours, the downward share price movement was really substantial.”
UK still heavily dependent on imports of fossil fuels
The UK is still heavily dependent on energy imports. The country’s net energy imports came up to 40.8% in 2023, according to the Digest of UK Energy Statistics (DUKES), an increase from 37% in 2022.
With the UK still getting the majority of its energy needs from fossil fuels, tax rises on energy companies are a growing problem, as more companies choose to move on.
This could be compounded by the country’s inability to speed up its renewable energy infrastructure at the same pace, leading to it being more dependent on energy imports and therefore becoming more economically vulnerable.
A number of politicians are under pressure from environmental groups who are calling on them to take decisive action against oil and gas companies, without offering a viable plan on how to replace fossil fuels with renewable energy without running out of the energy needed meanwhile.
Several other companies, including Shell, are considering moving to the US, where energy companies are still welcomed, and can take advantage of higher valuations and a wider range of investors.
