The Treasury is making an effort to win over bankers and financial institutions in order to garner their support for oil and gas projects in the North Sea. In an attempt to persuade them to resume investments in the region, which has been negatively impacted by the government’s windfall tax, Treasury officials have invited several major banks to a meeting on Friday.
Among the institutions expected to attend are Barclays, Lloyds, NatWest, Fidelity, and Abrdn, while foreign banks such as Wells Fargo, ING, BNP Paribas, and Societe Generale have also been approached. However, it is anticipated that only a few of the invited guests will be present, as many banks, including Barclays, NatWest, and HSBC, have either completely withdrawn from the region or reduced their investments.
One of the main reasons for this exodus, in addition to the windfall tax, is the mounting pressure on banks to adhere to environmental, social, and governance (ESG) criteria, which discourages investments in controversial industries like fossil fuels and defense. Despite BP’s commitment to invest £18 billion and Shell’s promise of £25 billion in the UK’s oil and gas sector, these investments are now at risk due to dwindling funds and rising tax bills, which have slowed down several North Sea projects.
For instance, the abandonment of the Perth Area license by Parkmead in June, which was estimated to hold the equivalent of 55 million barrels of oil, citing concerns over UK tax policy and lack of support, could have significant consequences. Projects like Rosebank and Cambo, the UK’s largest untapped oilfields, may also be imperiled.
An industry insider remarked that it is alarming that banks profiting from the country are unwilling to reinvest in it at a time when the UK’s energy security and net zero targets are at stake. The refusal of UK banks to finance these projects jeopardizes the nation’s energy security, leading to higher costs, increased carbon emissions, and less secure energy imports. The government must reassure banks that investing in the country’s energy market is not a risk.
Firms in the financial industry are becoming increasingly reluctant to invest in British fossil fuel projects in the North Sea since Rishi Sunak introduced a 25% levy on sector profits during his tenure as Chancellor, a tax that was later raised to 35% by his successor, Jeremy Hunt. This decision was made in response to public outcry over the profits of oil and gas companies following the Ukraine crisis, which caused a surge in global energy prices. However, the tax has faced criticism from the industry, with many arguing that it has stifled UK investment and increased reliance on imported energy.
The CEO of Harbour Energy, the largest oil producer in the North Sea, Linda Cook, has revealed that its profits were severely impacted by the tax, resulting in significant job cuts. EnQuest, a London-listed company, has also suspended drilling at the Kraken oilfield due to the levy. In an attempt to entice companies back, Sunak recently announced that hundreds of drilling licenses will be granted starting this autumn.
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