OEUK Says EPL Reform Will Mean More Jobs

A reform of the windfall tax on domestic energy producers in 2026 will mean more jobs, more tax revenue, and better UK energy security.

That’s what industry body Offshore Energies UK (OEUK) said in a statement sent to Rigzone recently, which noted that a new report from the organization “shows that reforming the windfall tax would add an extra GBP 137 billion ($183.9 billion) to the UK economy, support 23,000 jobs, and unlock much needed investment to reduce reliance on energy imports”.

A profit based mechanism is OEUK’s proposed replacement for the current Energy Profits Levy (EPL), the statement highlighted, noting that it’s designed to “trigger only during periods of unusually high prices, tax excess profits or revenues, [and] adjust fairly when prices fall, restoring investor confidence”.

“The proposal would mean the windfall tax would become a permanent profit based mechanism activated only when both oil and gas prices exceed a set threshold,” OEUK said in its statement.

“The headline tax rate drops from 78 percent to 40 percent but the new mechanism would still ensure additional tax revenue is generated when commodity prices are high,” OEUK added.

“Crucially, it works better for companies by offering greater predictability, a fairer investment environment, and stronger incentives to reinvest in UK projects – unlocking new developments, supporting jobs, and delivering a more stable production outlook through to 2050,” OEUK went on to state.

OEUK noted in its statement that its findings “show the current fiscal regime, exacerbated by the continuation of the Energy Profits Levy (EPL) until 2030, is accelerating decline of offshore energy production by deterring capital investment”.

“The modelling also shows that without reform of the current fiscal regime, oil and gas production will fall from 2025 levels by approximately 40 percent within the next five years,” OEUK warned in the statement.

The industry body highlighted in the statement that the UK Office for Budget Responsibility (OBR) revised down its forecast profits for the EPL, noting that it now expects the levy to raise GBP 21.1 billion ($28.3 billion) between 2023 and 2028, “compared to an earlier estimate of GBP 65.7 billion ($88.1 billion)”.

OEUK warned in the statement that the levy “is already having a severe impact on the sector, with around 1,000 jobs a month being lost and nine out of 10 supply chain companies looking overseas due to lack of work in the UK”. It highlighted that its report, which it said has been shared with the Treasury and “key” ministers, “warns that keeping the levy until 2030 may boost short-term tax revenue by GBP 6 billion ($8.0 billion), but will accelerate the North Sea’s decline with wider economic damage”.

OEUK noted in the statement that the EPL is blocking new field development and stalling existing projects.

“With 282 fields operating, the levy is creating a ‘no new investment’ scenario, threatening domestic energy supply and long-term growth. With reforms, the sector could pay an extra GBP 12 billion in taxes by 2050 as production is maintained,” OEUK said in the statement.

“A range of credible sources estimate the UK will use around 10-15 billion barrels of oil and gas between now and 2050 in the event net zero targets are met, however UK producers are only on track to meet four billion barrels of this demand – and even this is now at risk,” it added.

“With new projects this could reach half of demand, yet without new opportunities to responsibly replace declining fields, the UK risks undermining national energy security and economic resilience,” OEUK continued.

OEUK Chief Executive David Whitehouse said in the statement, “it’s set to be a tough autumn budget for households and sectors across the UK, and we recognize the pressures on the economy”.

“Our paper lays bare the choices facing the Chancellor when it comes to domestic oil and gas taxation,” he added.

“We are saying reform the Energy Profits Levy to boost national energy production, investment, unlock 23,000 jobs, and add over GBP 137 billion to communities – or keep the tax, gain short-term revenue, and risk the North Sea industry’s collapse,” he continued

Without changes to the fiscal regime, UK oil and gas could disappear within years, not decades, Whitehouse warned in the statement.

“That’s a risk we cannot take. We have a range of credible sources showing we will need between 10-15 billion barrels of oil and gas while still meeting UK net zero goals. UK producers are only lined up to produce about four billion of those, and even that target is now at risk,” he added.

“Today, 85 percent of homes are heated by gas, and while electric vehicle uptake is growing rapidly, around 23 million vehicles on our roads still rely on petrol and diesel,” Whitehouse said.

“By making the most of our homegrown oil and gas while accelerating renewables, the UK can turn one of its greatest assets – the waters around its coast – into a strong driver of economic growth. We need both oil and gas and renewable energy,” he continued.

Whitehouse went on to note in the statement that changing the Energy Profits Levy “would allow UK oil and gas operators to continue paying higher taxes when prices are high, while giving them the confidence to invest, knowing those taxes will adjust fairly when prices drop”.

“This budget needs big ideas and ambition. Our 200,000-strong industry has the skills and infrastructure to build a homegrown energy future. We now need a fiscal regime and energy policy that can help us deliver it,” he added.

Rigzone contacted HM Treasury (HMT), the Office for Budget Responsibility (OBR), and the Department for Energy Security and Net Zero (DESNZ) for comment on OEUK’s statement.

In response, a HMT spokesperson told Rigzone, “we know that oil and gas will be with us for decades to come and are managing the transition to clean energy in a balanced way that supports communities”.

“This includes Great British Energy, which has already announced GBP 1 billion ($1.3 billion) in investment in British supply chains, unlocking significant investment and helping to create thousands of skilled jobs,” the spokesperson added.

“The Energy Profits Levy will end by 31 March 2030, and we are working with the sector to explore how firms can continue to invest and pay their fair share of tax,” the spokesperson continued.

The statutory end date of the levy is March 31, 2030, but if prices fall consistently below levels set by the Energy Security Investment Mechanism, the levy will be repealed earlier than its sunset, HMT highlighted in its response to Rigzone.

An OBR spokesperson declined to comment on the OEUK statement but pointed out to Rigzone that OEUK has based its analysis on the OBR forecasts from the Autumn 2022 and March 2025 Economic and fiscal outlooks, and noted that the OBR’s forecasts for oil and gas revenues are based on assumptions for prices, production, and expenditure.

The OBR spokesperson noted that the OBR projects oil and gas prices using futures data from markets for the first three years of the forecast and then grows prices by around two percent thereafter.

The spokesperson highlighted to Rigzone that gas futures prices ahead of the Autumn 2022 economic and fiscal outlook were very high, peaking at over 300 pence a therm and only falling to 186 pence a therm by 2027-2028. The spokesperson noted that gas prices have been around 80-100 pence a therm in recent months.

At the time of writing, DESNZ has not responded to Rigzone.

OEUK highlighted in its statement that its analysis is based on fiscal and econometric modelling of the UKCS conducted by OEUK, based on industry data. It also reflects wider analysis of UKCS potential undertaken by the energy analytics firm Westwood Global Energy Group, OEUK said.

The budget, or financial statement, is a statement made to the House of Commons by the Chancellor of the Exchequer on the nation’s finances and the government’s proposals for changes to taxation, the UK parliament website states.

Typically, budgets take place either in the Spring or the Autumn, the site adds, highlighting that the last budget took place in the Autumn and was held on October 30, 2024.

In a statement made on March 5, which was posted on the UK parliament website, James Murray, the Exchequer Secretary to the Treasury, noted that the EPL was introduced in 2022 “in response to extraordinary profits made by oil and gas companies driven by global events, including resurgent demand for energy post-Covid 19 and the invasion of Ukraine by Russia”.

To contact the author, email andreas.exarheas@rigzone.com