NORTH Sea-focussed oil and gas firms have provided indications that investors are ready to back developments in the area although the recent windfall tax hike has created complications.

Chancellor Jeremy Hunt caused dismay in the industry earlier this month when he increased the rate of the windfall tax levied on North Sea profits to 35 per cent from the 25% set by Rishi Sunak in May.

A series of North Sea firms have posted big increases in profits following the surge in oil and gas prices fuelled by Russia’s war on Ukraine.

Industry leaders warned that the increase in the rate of the Energy Profits Levy could result in an exodus from the North Sea as firms decided to shift investment to other countries.

However, two firms that are working on significant North Sea developments yesterday made clear that they remained confident that they will be able to go ahead with their plans.

Jersey Oil and Gas said it expects to secure backing for its 150 million barrel Greater Buchan Area development plan from investors in coming months through a farm-out process. Completion of the farm-out could allow the firm to proceed with its longstanding plan to develop a major new production hub in the Moray Firth.

This will involve the company restarting production from the giant Buchan field and developing the Verbier find it made, which generated excitement in the industry.

Jersey indicated that the windfall tax moves had made the fund-raising process harder. However, they do not appear to have frightened investors off.

The company’s chief executive Andrew Benitz said: “Although multiple fiscal changes have slowed progress with closing out commercial farm-out discussions, we look forward to a successful conclusion if not by the end of the year then certainly in Q1 2023.”

Oil and gas firms can expect to benefit from strong market conditions for some time amid the fallout from the war in Ukraine.

Jersey welcomed the fact that the chancellor left in place the generous investment allowance that Mr Sunak introduced in May, while serving in Boris Johnson’s administration, to encourage firms to invest in North Sea developments. The Government hopes to boost North Sea production to help reduce the UK’s reliance on imports.

Meanwhile a firm that plans to develop an 80 million-barrel field east of Aberdeen has won an endorsement from an international oil services giant in the wake of the windfall tax increase.

Orcadian Energy has signed a Memorandum of Understanding in respect of well services on the Pilot field with SBL, which used to be known as Schlumberger.

“Partnering with SLB, which is a global technology company that drives energy innovation and has a wide range of capabilities and technologies, should ensure the successful delivery of the Pilot project,” said Orcadian.

It added: “ In recognition of the fact that SLB is committing significant resources to the finalising of the Project Agreement, Orcadian has undertaken not to award contracts for the core services to third parties.”

SLB’s decision to commit such resources to the project signals confidence in the commercial potential of Pilot, which Orcadian hopes will provide a model for how the industry can reduce emissions associated with the production process.

Pilot is expected to utilise a wind turbine to produce the power needed for production facilities. Led by chief executive Steve Brown, Orcadian plans to use sophisticated polymers to help cut emission associated with the extraction of oil from the field.

The company reckons such approaches could help unlock significant heavy oil reserves in the North Sea.

Shares in Orcadian Energy closed up 2p at 26p.

Jersey Oil and Gas shares closed up 7.5p at 214.5p.


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