While the recent licencing round has provided a short-term fillip for the sector, the rhetoric from the Labour opposition continues to undermine the longer-term outlook, which has been exacerbated by the recent news the EPL will be increased by a further 3% and extended to January 1, 2030. Given that it is likely that Labour will form the next government, the erosion to the all-important longer-term investment confidence has been undermined. Nevertheless, this dislocation is resulting in select opportunities for investors, which will create significant returns, despite the fiscal dislocation. Given this, we increase our risk premia to 5.5% and maintain our Negative outlook.
February 9, 2024
Europe - North West
Western Europe island between the North Atlantic Ocean and the North Sea; northwest of France.
The fiscal regime that applies in the United Kingdom (UK) to the oil and gas industry consists of a combination of corporation tax, supplementary charge, petroleum revenue tax and the Energy Profits Levy, which currently has a March 2028 sunset clause.
The terms of the UK’s future relationship with the EU seem to be improving with the "Windsor Agreement," but just because there are rules, doesn't mean that the EU will follow them, so the jury is still out. UK legal, regulatory, and accounting systems are transparent and consistent with international standards. The UK legal system provides a high level of protection and private ownership is protected by law and monitored for competition-restricting behaviour.
Source: ESRI, Heritage Index, HMG Foreign & Commonwealth Office, US Department of State, International Trade Administration, International Law Review, Ernst & Young, Wood Makenzie & OGA data.
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