A DRAMATIC intervention by a North Sea oil and gas heavyweight in the industry’s campaign against the windfall tax on the sector may backfire as the Government tries to balance the interests of consumers and investors.

During the closing stages of preparations for tomorrow’s Budget, Harbour Energy last week aimed to pile pressure on the Chancellor Jeremy Hunt to cut the tax imposed last year, which critics claim could spell disaster for the North Sea.

Harbour said the $1.5 billion (£1.2bn) tax charge it booked almost wiped out the profits it made last year, when oil and gas firms enjoyed a bonanza amid the surge in prices fuelled by the war in Ukraine.

While the $1.5bn figure represented a non-cash accounting provision and the company only paid over $200 million to the Exchequer in respect of the windfall tax last year, the claim generated headlines.

Less attention was paid to the fact that Harbour revealed it had increased the valuation of North Sea assets by $250m last year to reflect higher gas price assumptions and announced plans for more bumper payouts to shareholders. The company shelled out $550m in respect of dividends and share buybacks last year.

Harbour, which is backed by US investors, reiterated that it would cut spending in the North Sea in response to the introduction of the windfall tax, in a move it is thought could put hundreds of jobs at risk. The company may shift investment overseas.

Some thought the update helped to justify warnings that the windfall tax could have dire consequences as the UK looks to boost domestic production to cut reliance on imports.

However, it could lead others to question whether the private sector can be relied on to help achieve this objective at a fair price.

When he was Chancellor in Boris Johnson’s administration, Rishi Sunak resisted calls for a windfall tax to be introduced fearing it could deter investors, before bowing to popular pressure to make firms hand over some of the gains they had enjoyed through little apparent effort of their own.

He introduced the Energy Profit Levy at a 25% rate, to supplement the existing 40% charge, in May as he looked to raise funds to help ease the impact of the resulting increase in energy bills for consumers.

After becoming Prime Minister, Mr Sunak ignored industry anger about the tax and increased the EPL rate to 35% in November, taking the total tax rate payable to 75%. He also extended the term the levy would be in force to 2028, from 2025.

The pill was sweetened by the introduction of an allowance under which firms can get a tax saving of 91p for every pound invested.

However, Harbour’s action may lend weight to claims the Government got too greedy.

It follows a concerted campaign to get ministers to think again, which has been reinforced by developments in the market.

Oil and gas prices have fallen well below the peaks they reached last year, amid concerns about the economic outlook and favourable weather. Some reckon that means claims that firms are set to enjoy a sustained windfall are misguided.

Companies such as TotalEnergies and Apache have announced cuts in North Sea drilling activity and this month CNR International said it planned to cease production from the giant Ninian field citing projected cost burdens.

Industry body OEUK said the decision provided “a stark example of how confidence to invest in UK energy security is being rocked by the UK’s current fiscal regime”.

The Ninian news came within days of the Scottish Government releasing an analysis by accountancy giant EY that underlined the value of the oil and gas industry, after ministers said the country should move faster to reduce reliance on it.

In the draft energy strategy released in January the Government said there should be a presumption against new exploration on environmental grounds.

In an analysis prepared as part of the consultation process related to the strategy EY noted the challenges that would be involved in replacing the 57,000 jobs supported by the industry.

Some think such figures reinforce the case for a cut in the windfall tax rate. Others, however, say the rate should be increased.

Concerns about the amount of money oil and gas firms are making were reignited last week when Shell announced that former chief executive Ben van Beurden got a £9.7m pay package last year, up more than 50% on the preceding period.

Shell made a record $40bn profit from its global operations last year.

The firm is a major North Sea player but for years paid no tax on the profits it made in the area because of the value of reliefs provided on decommissioning old assets and developing new ones.

It expects to pay around $500m in respect of the windfall tax this year.

New chief executive Wael Sawan appeared to express disquiet about the levy recently when he told The Times that Shell would “think twice about investing in more oil in the UK”.

He has noted that Shell’s priorities are to increase payouts to investors and to cut debt. The company has described the North Sea business as a cash engine.

It is significant that Mr Sawan referred to oil projects.

Shell has continued to invest in gas projects in the North Sea following the introduction of the windfall tax. It approved the Jackdaw field development in July and bought control of the undeveloped Victory gas prospect in October.

The company expects demand for gas to remain strong for years.

While prices have come off their peak, big North Sea producers think the outlook remains good.

“Gas prices are expected to remain above long-term trends supported by high competition for international supplies, with Europe increasing demand for non-Russian gas to build inventories,” said North Sea heavyweight Neptune Energy last week.

The company bemoaned the windfall tax but made clear it still expects to generate plenty of money from its production operations.

Neptune said windfall taxes had also created uncertainty in other countries in which it operates, such as Germany and the Netherlands.

This limits the options of firms that want to shift investment.

Before the windfall tax was introduced experts at the Rystad consultancy said the tax regime in place in the UK was one of the most supportive in the world.

Even after the November increase tax rates are not out of line with leading nations.

In Norway companies pay a 78% tax rate.

On the Norwegian petroleum directorate website it states: “The overall objective of Norway’s petroleum policy has always been to provide a framework for profitable production of oil and gas in a long-term perspective. It has also been considered important to ensure that a large share of the value creation accrues to the state, so that it can benefit society as a whole.”

When the Budget is published we may find it includes concessions the Government has decided to make to help silence critics. Mr Sunak may not have helped the situation by introducing the windfall tax in two stages rather than having the guts to start with a higher rate.

But oil and gas firms should go canny. Not so long ago the North Sea regulator warned the industry’s social licence to operate was in jeopardy amid concerns about global emissions.

Threats by firms to cut investment and jobs in the North Sea may persuade politicians to act to ensure assets are entrusted to new owners that will make the most of them. These could include the state.