UK government swoops on North Sea windfall profits

After months of political pressure, the UK government is increasing the tax payable on oil and gas production. Instead of raising existing tax rates, it has added a third tax – the Energy Profits Levy – which will apply from May 2022. The overall tax rate will increase by 25% to 65% but an 80% investment allowance is deductible. The industry won’t like it; aggregate producer cash flow will be 18% lower in 2022 than it would have otherwise been. But neither industry nor government were anticipating US$100/bbl Brent and US$30/mmbtu gas. Corporate profits will still be higher than what would have been anticipated six months ago.