A major US oil company, Apache, has announced that it will cease all its operations in the North Sea by 2029. This decision is largely due to the increase in the windfall tax on oil and gas firms, which the company claims has made it unprofitable to continue production in the region. The company has warned that the financial impact of the tax, along with the need for substantial investments to meet new regulations, will make further operations in the North Sea “uneconomic.”

What is the Windfall Tax?

The windfall tax, officially known as the Energy Profits Levy (EPL), was introduced in May 2022. It was designed to tax the extra profits that oil and gas companies made due to rising energy prices. At that time, energy companies across the UK were making significant profits, leading the government to introduce this levy. Initially, the tax was set at 25%, and it was expected to last only until 2025.

However, as energy prices continued to rise and profits increased, the UK government decided to raise the windfall tax. Under the leadership of then Chancellor Rishi Sunak, the tax rate was increased to 35% and extended until March 2029. In the most recent Budget, the government announced another increase to 38%, which brings the total tax rate on oil and gas companies to 78%. This increase and extension of the tax are the key reasons Apache has decided to stop its operations in the North Sea.

Apache’s Response

Apache, a Texas-based oil firm, has been operating in the North Sea for many years. It took control of the Forties oil field, located east of Fraserburgh, in 2003. Despite its long history in the region, the company suspended all new drilling activities in 2023. With the recent changes to the windfall tax, Apache has now confirmed that it will exit the region completely by 2029. The company has stated that the “onerous financial impact” of the tax, combined with the heavy investment required to meet regulatory changes, makes it impossible to continue production profitably in the North Sea beyond that time.

A spokesperson for Apache explained that their focus will now shift towards maintaining the safety and integrity of their assets. The company plans to prepare for the responsible decommissioning of its operations, including the shutdown of offshore platforms and the removal of equipment.

The UK Government’s Clean Energy Goals

In response to Apache’s announcement, the UK government has defended its decision to raise the windfall tax. The government has stated that it is committed to making the UK a “clean energy superpower.” Part of this vision involves transitioning from fossil fuels to renewable energy sources like wind, solar, and hydrogen.

The government argues that the oil and gas sector has a role to play in this transition by contributing more to the country’s clean energy future. This includes not only helping to fund new energy projects but also investing in jobs that will be created as the UK moves towards a greener energy system. To support this transition, the government has created a new publicly-owned company called Great British Energy. Based in Aberdeen, this company will work with both the public and private sectors to develop and support clean energy projects.

A government spokesperson emphasized that the Energy Profits Levy would help fund this shift. The government secured £24 billion in investment for green industries at the International Investment Summit. This investment is intended to support the growth of clean energy, enhance energy security, and provide new, sustainable jobs in the future.

Industry Concerns

While the government insists that the transition to clean energy will bring job opportunities, the oil and gas industry has raised concerns about the impact of the windfall tax. The industry group Offshore Energies UK (OEUK) has warned that the increase in the windfall tax could discourage investment in the sector. This reduction in investment could potentially lead to job losses, particularly in the North Sea oil fields, which have supported thousands of jobs over the years.

OEUK and other industry representatives have argued that the government should find a way to support both the transition to clean energy and the existing oil and gas industries. They believe that a balanced approach is needed, one that encourages investment in both sectors to ensure energy security while also addressing environmental concerns.

The Future of North Sea Oil and Gas

Apache’s decision to withdraw from the North Sea raises important questions about the future of the UK’s oil and gas industry. The North Sea has been a key source of oil and gas for the UK for decades. However, as the world moves towards cleaner energy sources, it is clear that the role of traditional energy companies is changing.

The UK government’s goal of becoming a clean energy superpower is ambitious, but it will require significant investments in renewable energy infrastructure and technologies. While the oil and gas industry may face challenges in the short term, the government hopes that the transition to cleaner energy will create long-term economic benefits and job opportunities in new industries.