EnQuest: Government’s windfall tax has made North Sea oil ‘globally uncompetitive’

Labour must ‘act now’ to save Britain’s oil and gas sector and avert the ‘death of the UK’s energy transition ambitions’, North Sea oil firm EnQuest has warned.

EnQuest and some of its rivals have been increasingly diverting investment away from the UK in response to the Energy Profits Levy. 

The windfall tax was introduced in 2022 following a surge in oil and gas prices largely driven by Russia’s invasion of Ukraine.

Labour’s 2024 Autumn Budget hiked the tax by three percentage points to 38 per cent, and axed the 29 per cent investment allowance for new North Sea oil and gas extraction.

The measures mean UK oil and gas producers pay a headline tax rate of 78 per cent, among the world’s highest.

The Office for Budget Responsibility predicted last year that capital expenditure in offshore energy would decline by 26 per cent over the coming years, resulting in reductions of 6.3 and 9.2 per cent in oil and gas production, respectively.

And the OBR has accepted that no ‘windfall’ currently exists for oil firms, with Brent Crude prices down more than 40 per cent from their June 2022 peak at $67.06 per barrel.

EnQuest on Wednesday said it faced a reported statutory net loss of $173.5million for the six months to 24 September, when including a $123.9million non-cash adjustment due to the extension of the Energy Profits Levy by two years. 

This compares to a reported statutory net profit of $30.3million last year.

Chief executive Amjad Bseisu said: ‘We are committed to continued investment in our UK business, targeting material, value-enhancing growth.

‘Our near-term pivot to investment outside of the UK underlines, however, how successive UK Governments have made the UK North Sea globally uncompetitive through fiscal policy.

‘The UK remains the only country worldwide levying a windfall tax on energy profits, in an environment where even the Office for Budget Responsibility acknowledges that prices are at, or below, historic norms and therefore no windfall exists.’

Earlier this year, the Government consulted on a new, permanent ‘Oil and Gas Price Mechanism’ to replace the EPL when it is due to end in 2030.

It wants to create a predictable system taxing ‘unusually high’ oil and gas prices to ensure a ‘fair return for the nation’ during price shocks, while still protecting investment in the North Sea.

Bseisu said: ‘The UK Government now has a tool with which to revitalise this sector; materially increasing investment and tax revenues to Treasury, improving the UK’s energy security in a volatile macro environment, and protecting jobs across the country, which are currently being lost at a rate of 1,000 per month.

‘We implore the Government to act now to avoid the accelerated decline of this industry and the resulting death of the UK’s energy transition ambitions.’

EnQuest shares were down 3.1 per cent to 11.38p in early trading, bringing 2025 losses to 11.4 per cent. 

Research analyst at Shore Capital James Hosie said:  ‘EnQuest’s H1 financial results are fundamentally in line with our estimates, while the operational performance has been very strong across the portfolio. 

‘With full year guidance unchanged we expect the results presentation to focus on management’s growth ambitions in both the UK and SE Asia. 

‘In particular, the release highlights the path to quadrupling net production in SE Asia to c.35 thousand barrels of oil equivalent per day (kboe/d) by FY30F. We reiterate our Buy rating with a fair value estimate of 28p/share.’