Labour’s plans for a windfall tax hike have been cast into the spotlight ahead of publication of its general election manifesto tomorrow after an exploration pioneer suffered a major setback amid uncertainty in the oil and gas sector.
Deltic Energy announced that it would surrender its stake in the bumper Pensacola discovery it made with Shell after finding it could not secure the funds needed to cover its share of work on the find.
The company admitted defeat after a last ditch bid to find a partner to buy a stake in Pensacola or to secure bank funding drew a blank.
Announcing its decision to withdraw from the Pensacola licence, Deltic cited “deteriorating sentiment towards the oil and gas industry as a result of ongoing fiscal volatility and negative political rhetoric in the run-up to the July election”.
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Deltic said in April that rhetoric emanating from the Labour Party following the Conservative Government’s windfall tax changes had “a severely negative effect on the ability of UK Exploration and Production companies to commit to long term investments in the North Sea”.
In February Labour said it would increase the rate of the windfall tax to 78%, from 75% and close “loopholes” that diluted the levy’s impact. This was thought to be a reference to the investment allowance introduced with the windfall tax in 2022.
Industry leaders have warned Labour’s plans would lead to sharp cuts in North Sea investment and jobs if they are implemented.
Following Deltic’s decision to withdraw from the Pensacola licence Shell is in line to inherit most of its interest in a project that showed there are still big finds to be made in the North Sea.
Deltic persuaded Shell to buy into the Pensacola licence in 2019 after using modern technology to identify fresh prospects in what is seen as a mature basin.
READ MORE: Scotland's dependence on oil and gas clear amid North Sea fears
However, Labour has said it will not issue any new North Sea exploration licences on environmental grounds if it wins the general election set for July 4.
Final proposals will be included in the election manifesto that Labour will publish on Thursday.
Deltic has a stock market valuation of around £10 million compared with £175 billion for Shell.
The North Sea oil and gas industry regulator has led a push to maximise the economic recovery of the area’s reserves in recent years. In 2020 it updated its strategy to require the industry to operate in a way consistent with the UK’s net zero ambitions.
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