1 of 2 | Should a lower-for-longer price point for commodities emerge, North Sea oil and gas producers could see relief from windfall taxes imposed in 2022. File photo courtesy of Shell
June 9 (UPI) -- A windfall tax on oil and gas production for North Sea operators would be suspended should crude oil and natural gas prices drop below a certain threshold for a sustained period, the British finance ministry said Friday.
The government in May 2022 imposed a marginal tax rate of 75% on North Sea oil and gas producers, a levy that would remain in place for the next five years should the price of crude oil enter a higher-for-longer scenario, the British Treasury said Friday.
The tax, however, would fall to 40% should the price of oil return to "normal levels" for a sustained period of time.
The Treasury said that the 40% average would return if the price of Brent crude oil, the global benchmark for the price of oil, falls to or below $71.40 per barrel and $0.67 per therm, a unit of energy, for natural gas.
The levy was imposed in response to the spike in commodity prices that followed the Russian invasion of Ukraine last year.
"It is right that we recover excess profits resulting from Putin's war and use the money to help people with their energy bills," said Gareth Davis, a treasury secretary and member of the British Parliament.
British energy company BP reported earnings of $9.3 billion for the second quarter of 2022, its largest quarterly profit in 14 years at the time. Producers criticized the tax as an impediment to investments at a time when major economies were looking for alternatives to Russian oil and gas.
Markets have since contracted significantly, however, as major producers such as the United States fill the void. Brent crude oil was trading at around $76 per barrel, down from $120 per barrel last June. As such, independent price forecasts from the British government suggest the price floor likely won't be triggered until the levy expires in March 2028.