Oil and gas firms appear resigned to the prospect that Ms Reeves will increase the rate of the windfall tax on profits that was introduced by the Conservatives in 2022. But indications the Labour Government also plans to axe allowances that let firms claim tax relief in respect of North Sea investments have caused consternation.
With OEUK warning that projects worth £12bn could be at risk, Mr Whitehouse said: “We do have concerns that in a worst-case situation we will see a hard stop to investment in our domestic production.”
“That would have a profound effect on communities and jobs, not just in North-East Scotland but across the UK.”
Amid claims that 35,000 jobs could be threatened, OEUK has weeks to persuade ministers to leave the allowances regime intact in the Budget.
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Mr Whitehouse faces a tough task following years in which oil and gas firms have been slated by campaigners who claim producers fuel the emissions crisis while making huge profits.
However, the case for the industry may be stronger than is recognised on political and environmental grounds.
“The Government and Keir Starmer have said that the North Sea will be managed in a way that does not jeopardise jobs,” noted Mr Whitehouse.
“We have heard repeatedly that the Government wants to see continued investment in the sector so when we get to October 30 we are looking to the Government to honour those commitments.”
Oil and gas firms have continued to invest in the North Sea since the windfall tax was introduced in 2022.
But Mr Whitehouse dismissed suggestions that firms may be bluffing in response to the prospect of further changes, insisting: “The industry is in no way, shape or form crying wolf.”
He noted that exploration drilling has already falling to record lows. Some firms have announced that they are putting activity on hold while they wait for the outcome of the Chancellor’s Budget deliberations.
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The result of the Treasury’s decision-making process could have big implications if the UK Government is to maintain progress towards meeting the target to reach net zero by 2050 set by the Tories and to achieve its own economic objectives.
While energy minister Ed Miliband is banging the drum for renewables, Mr Whitehouse said the Government could impede the net zero drive if it implements tax changes that trigger cuts in North Sea oil and gas production.
Noting that every political party recognises that we will use oil and gas for decades to come, he said: “What we produce here is of significantly lower emissions than the imports we would make.”
Mr Whitehouse added: “We all recognise that our energy mix must change and we need to drive out emissions… but on that journey surely it makes sense that we prioritise our own industries, our own home-grown production; that we continue to support jobs, we put value back into our economy and by doing so we drive down global emissions.”
OEUK says oil and gas production supports activity across a supply chain that covers the country, and which would be devastated if there are significant cuts in North Sea investment.
“On this journey there will be no prizes for delivering net zero in a way that delivers the decarbonisation we need but we deindustrialise the country,” said Mr Whitehouse. “The country would be poorer.”
He noted that the UK and Scottish Governments are trying to respond to the challenge posed by Petroineos’s decision to close the giant Grangemouth refinery on the Forth.
The skills developed by the oil and gas supply chain should be protected carefully not least because they could be used to support the development of the green energy assets that the country will need.
“We have a sector around the UK which has committed to be a partner in the energy transition,” said Mr Whitehouse, who led oil and gas operations in the UK and other countries for CNR International before taking on the OEUK job in December 2022.
By way of example, he noted: “We’ve got a sector that is investing in carbon storage, in hydrogen, in wind and floating wind. We’ve got a sector that is supporting over 200,000 high quality jobs up and down the country and is working hard to bring through the next generation and is working hard to make sure those skills can be transferred seamlessly across sectors in the transition.”
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Mr Whitehouse said the bulk of the investment required could be expected to come from the private sector but the Great British Energy organisation which the Labour Government is launching to support the transition could play a valuable role.
This might involve supporting the development of pipeline infrastructure that will be required to transport hydrogen and carbon dioxide between Scotland and the UK and other countries.
Mr Whitehouse downplayed concern that while hyping up the potential impact of GB Energy Mr Miliband has announced that the Government will not issue new North Sea exploration licences.
“This is not an industry that is looking for frontier exploration in the North Sea,” he said noting that licences covering the “vast majority” of the area have been issued already.
Oil and gas firms want to focus on the development of opportunities close to existing infrastructure. The Government has said it will respect the terms of existing licences.
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Mr Whitehouse also appeared untroubled by the Supreme Court ruling in August that regulatory assessments of the environmental impact of planned developments must consider emissions associated with use of the oil and gas concerned.
“This is an industry which always seeks to be transparent about our operations so we see that as something we can readily comply with,” said Mr Whitehouse. He noted that the case in question concerned procedural issues regarding the provision of data and its assessment.
Mr Whitehouse thinks the industry has shown its commitment to tackling the issue of emissions associated with North Sea production operations. A report issued by OEUK in September found the industry had already achieved the target to reduce emissions associated with North Sea production by 25% by 2027, which was agreed as part of the North Sea Transition Deal in 2021.
Mr Whitehouse noted that the bulk of North Sea development projects are being led by independents such as Serica Energy. Sector watchers have said independents don’t make anywhere near as much money as majors but have paid a high price for the windfall tax – which was introduced in response to the huge profits generated by the likes of Shell from operations that span the globe.
Serica’s chief executive Chris Cox has warned that North Sea producers could move into “run-down” mode if the industry’s worst fears about the Budget are realised.
Serica has been working on plans to restart production from the vintage Buchan field in the Moray Firth.
However, in a move that lends weight to Mr Whitehouse’s warnings, the operator of the field, NEO Energy, said recently that it would “materially slow down investment” citing fiscal and regulatory uncertainty.
The Chancellor is expected to increase the rate of the windfall tax on North Sea oil and gas firms to 38% from 35%. Such an increase would take the total tax rate payable by firms to 78%.