UK oil and gas major Harbour Energy sees profit jump 'all but wiped out' by windfall tax

The UK's biggest oil and gas producer said it had seen a nearly eight-fold increase in its profit "all but wiped out" as Westminster's windfall tax on energy companies kicked in.

Harbour Energy – which is registered in Edinburgh and has two bases in Aberdeen as well as several assets in the North Sea – said it would pay close to $1.5 billion (£1.3bn) due to the new rules, which were put in place in May amid surging energy prices. As a result, and thanks to the company's normal tax bill, Harbour's pre-tax profit of £2.5bn was reduced to £8 million after tax.

Chief executive Linda Cook said: "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's largest oil and gas producer, it has all but wiped out our profit for the year."

Harbour has said that it plans to cut both jobs and investment due to the windfall tax, despite a loophole regarding the latter that would have allowed it to write off much of any new investments in the North Sea. However, it did not stop it from handing cash to its investors, clubbing through £600m in shareholder distributions in 2022.

The firm is active in the Catcher oil field in the UK central North Sea, about 174 kilometres from Aberdeen. Picture: contributed.

The windfall tax – officially called the Energy Profit Levy – has been less impactful for oil and gas giants BP and Shell because most of their production comes from outside the UK, so is not covered by the tax, but Harbour Energy being largely focused on extracting oil and gas off British shores means a much larger percentage of its profits were impacted by the levy.

The firm – created in 2021 when, through a reverse takeover, Chrysaor merged with Premier Oil – said it had produced an average of 208,000 barrels of oil equivalent every day in 2022, up 19 per cent year on year. Extracting each barrel cost $13.90, a reduction of 8.5 per cent. Ms Cook also stated: "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.”