HARBOUR Energy has declared the windfall tax “all but wiped out” profits last year and has led it to cut UK staffing levels and investment.

The North Sea giant reported that pre-tax profits had surged to $2.5 billion last year from $315m on the back of the rise in oil and gas prices that followed Russia’s invasion of Ukraine around one year ago.

However, it told the City that profit after tax plunged to $8 million in 2022 from $101m because of a $1.5 billion one-off, non-cash deferred tax charge associated with the Energy Profits Levy.

The results showed “materially higher production” in 2022 had helped Harbour improve margins, cut debt, and return capital to millions of dollars to investors.

Chief executive Linda Z Cook said: “In our first full year as a publicly listed company, Harbour delivered materially higher production which – together with improved margins –enabled us to continue to deleverage and make material shareholder distributions. We further developed our net zero strategy, setting ourselves an interim target, and built significant momentum in our flagship Viking CCS (carbon capture and storage) project. Most importantly we achieved all of this while improving our safety record.

“However, the UK Energy Profits Levy, which applies irrespective of actual or realised commodity prices, has disproportionately impacted the UK-focused independent oil and gas companies that are critical for domestic energy security. For Harbour, the UK’slargest oil and gas producer, it has all but wiped out our profit for the year. This has driven us to reduce our UK investment and staffing levels. Given the fiscal instability and outlook for investment in the country, it has also reinforced our strategic goal to grow and diversify internationally.”

The UK Government introduced the Energy Profits Levy last year to tax the extraordinary profits oil and gas companies began to make after the surge in commodity prices that followed Russia’s invasion of Ukraine. The rise in prices has helped companies such as Shell and BP deliver record profits and return billions of pounds to shareholders.

The levy imposes a 35% surcharge on the profits of UK oil and gas companies, which effectively lifts the headline rate of tax to 75%. While some critics have argued it is not high enough to temper the huge profits businesses have been making, energy companies have warned it will lead them to direct investment outside the UK.

Harbour, which is the largest independent oil and gas company listed in London, began consulting staff in the UK over an unspecified number of redundancies in January. It said the levy had “necessitated a review of our future activity levels in the UK and reinforced our ambition to grow and diversify internationally”.

No update was provided on the consultation yesterday.

The firm employs around 1,500 people in the UK, the bulk of whom are based in the Aberdeen area. Harbour Energy was formed by the merger of major North Sea players Chrysaor and Premier Oil in 2021. The company generates 90% of its production in the UK from assets such as the giant Britannia and Catcher fields north-east and east of Aberdeen, though also has interests in Norway, Indonesia, Vietnam, and Mexico.

Yesterday it reported that production had climbed by 19% in 2022 to 208,000 barrels of oil equivalent (boepd) on lower operating costs of $13.9 per barrel of oil, down from $15.2 per barrel in 2021.

The rise in commodity prices helped it realise higher UK oil and gas prices of $78 per barrel of oil and 86p per therm of gas, up from $59/ bbl and 54p/ therm in 2021, post hedging. Free cash flow surged to $2.1bn, up from $0.7bn after total capital expenditure of $0.9bn (unchanged from 2021) and tax payments of $551m (up from $280m). Net debt fell to $0.8bn from $2.3bn.

The cash generated by Harbour last year helped support a final dividend of $100m or 12 cents per share, in line with a $200m annual dividend policy. Added to a new $200m buyback announced yesterday, the company said shareholder returns since December 2021 total $1bn.

The company reiterated its production guidance of 185,000-200,000 boepd for 2023.

Shares closed up 1.1p at 288p.

Ms Cook added: “Thanks to our robust balance sheet, we enter 2023 well-placed to deliver on our strategy of building a global diverse oil and gas company. We will continue to return any excess capital to shareholders while investing in our existing portfolio and maintaining capacity for meaningful but disciplined M&A.”