Banks are lowering loans to smaller North Sea oil and gasoline producers after the UK authorities raised and prolonged its windfall tax on fossil gas corporations in November, the power business has warned.
Banks are reassessing the quantities they’re ready to lend to UK North Sea producers below credit score amenities which are linked to the worth of their oil and gasoline reserves, in keeping with commerce our bodies.
Brindex, which represents corporations akin to London-listed teams Harbour Power and Ithaca Power, estimates that small and medium-sized oil and gasoline producers within the UK presently depend on about £14bn of borrowing below so-called reserves-based lending amenities.
“Virtually all” corporations that depend on reserves-based lending, each for working capital and to fund new investments, had been more likely to be “very negatively affected” by adjustments to the UK power earnings levy on oil and gasoline producers that had been outlined within the authorities’s Autumn Assertion, mentioned Brindex chair Robin Allan.
Chancellor Jeremy Hunt provoked uproar amongst North Sea oil and gasoline teams after he elevated the power earnings levy from 25 per cent to 35 per cent, and likewise prolonged it to the top of March 2028. Beforehand the levy had been because of be withdrawn on the finish of 2025.
It was initially unveiled in Could by Rishi Sunak, whereas he was chancellor, to focus on the windfall earnings many oil and gasoline producers had been making from the surge in commodity costs following Russia’s invasion of Ukraine. Proceeds from the levy will assist fund state assist for households and companies with their power payments.
Allan mentioned the issue with reserves-based lending amenities had been induced particularly by the “pointless” withdrawal by the federal government of a promise made in Could that the levy could be phased out earlier than 2025 if oil and gasoline costs fell towards “historically more normal levels”.
“Whereas regular degree was by no means outlined, that wording allowed banks to think about what a standard degree could be,” added Allan.
Deirdre Michie, the outgoing chief government of OEUK, a commerce physique for North Sea oil and gasoline corporations, mentioned some teams had been going through as much as a 50 per cent lower of their reserves-based lending amenities, that are recurrently reviewed by banks.
Michie, who departs OEUK on the finish of December following eight years on the helm, mentioned the rise within the power earnings levy was a “tax too far” and it had “actually undermined investor confidence to a degree I haven’t seen throughout my time right here”.
Power teams have been pushing for a recent dedication from the federal government to take away the levy — which raised their headline combination tax price from 65 per cent to 75 per cent — if oil and gasoline costs do fall considerably.
The issue with shrinking financial institution lending was raised with Hunt throughout a gathering with oil and gasoline business executives in Edinburgh earlier this month, mentioned folks briefed on the talks.
The Treasury declined to touch upon the problems referring to financial institution lending. It mentioned the power earnings levy “strikes a steadiness between funding price of residing assist for households and companies, whereas encouraging funding to bolster power safety”.
It added that it has additionally launched a brand new funding allowance, which might enable corporations to cut back their tax invoice towards the levy in the event that they plough extra funds into oil and gasoline tasks in UK waters.
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