Ineos Founder Fears for North Sea Future

Ineos Founder and Chairman Jim Ratcliffe said he fears for the future of the North Sea in a statement sent to Rigzone.

According to the statement, Ratcliffe told his Forties Pipeline System business that the UK government’s 75 percent windfall tax on oil and gas producers in the North Sea will lead to a collapse in investment in the basin.

“The UK has hiked the tax take in the North Sea from 40 percent to 75 percent and we are now seeing many operators pausing or canceling their investment plans,” Ratcliffe said in the statement.  

“The big winners are in the U.S. where operators in the Gulf of Mexico can pay just 37 percent tax and investment is at its highest level for a decade,” he added.

“The UK governments so called ‘windfall tax’ is really primitive politics. There has been no thought given to the long-term consequences of this ‘tax it to death’ move. Taxes are now so high that profits no longer fund future investments and on top of this, new investments have poor returns with invariably high tax rates,” Ratcliffe continued.

Ratcliffe went on to note that what the country needs is energy security, which he said “means encouraging developments in our strategic energy reserves in the North Sea, not taxing it out of existence and shutting down the basin”.

The statement noted that the Forties Pipeline System links over 85 fields in the North Sea and gives Ineos a unique view into the development plans of the oil and gas operators working there. It highlighted that Ineos FPS is currently investing up to $1.24 billion (GBP 1 billion) upgrading the network “to ensure it remains fit for purpose until the 2040s” but warned that “this is dependent on the basin remaining a viable oil and gas hub”.

When Rigzone asked HM Treasury for comment on the statement, a government spokesperson said, “the Energy Profits Levy helps fund $32.33 billion (GBP 26 billion) in cost of living support from excess profits while encouraging investment in order to bolster the UK’s energy security”.

“We have been clear that we want to encourage reinvestment of the sector’s profits to support the economy, jobs, and our energy security, which is why the more investment a firm makes into the UK, the less tax they will pay,” the spokesperson added.

In a policy paper posted on its website on March 15, the UK government outlined that the Energy Profits Levy was introduced from May 26 last year “to tax the exceptional profits of oil and gas companies operating in the UK and on the UKCS”.

“To maintain the incentive for companies to invest in oil and gas production to support the UK’s energy security, the EPL included a[n] … 80 percent allowance against the levy based on investment expenditure,” the policy paper stated.

The tax was due to expire on December 31, 2025, however, at the Autumn Statement, the UK Chancellor of the Exchequer announced changes to the Energy Profits Levy, including an extension to March 31, 2028, the paper outlined.

Other changes included a rate increase from 25 percent to 35 percent and the reduction of the rate of the investment allowance to 29 percent for all investment expenditure other than in decarbonization, the paper highlighted.

The Chancellor also announced that, from January 1, 2023, qualifying investment expenditure on decarbonization of upstream production will be eligible for a higher expenditure allowance at 80 percent, instead of the 29 percent allowance, the paper noted.

In February 2019, Ineos revealed that it would invest $1.24 billion (GBP 1 billion) in the UK, comprising $622.4 million (GBP 500 million) in the Forties Pipeline System, $435.9 million (GBP 350 million) at Grangemouth in a new energy plant, and $186.69 million (GBP 150) million to build a 300,000 ton per year vinyl acetate monomer plant.

“Ineos is a supporter of British manufacturing and this $1.24 billion (GBP 1 billion) investment underlines our confidence in our business in the UK,” Ratcliffe said in a company statement at the time.

“These investments will ensure that our UK assets continue to be world class for many years to come,” Ratcliffe added in the statement.

To contact the author, email andreas.exarheas@rigzone.com