EnQuest warns Labour to act now to save UK North Sea as windfall tax makes industry globally uncompetitive

EnQuest on Wednesday warned that the United Kingdom’s windfall tax regime has rendered North Sea oil globally uncompetitive and urged the government to act now to protect Britain’s oil and gas sector and the country’s energy transition ambitions. The warning comes amid a broader critique of fiscal policy in the sector, as the government has pressed ahead with a tax framework that analysts say discourages investment at a time of price volatility and shifting energy demand. The Energy Profits Levy, first introduced in 2022 in response to a surge in oil and gas prices driven largely by the invasion of Ukraine, has been extended and expanded in recent years. Labour’s 2024 Autumn Budget raised the EPL by three percentage points to 38%, and it also removed the 29% investment allowance for new North Sea oil and gas extraction. Taken together, UK oil and gas producers now face a headline tax rate of 78%, among the world’s highest. The Office for Budget Responsibility has warned that capital expenditure in offshore energy could fall sharply in coming years, forecasting a 26% drop in capex with corresponding declines in oil and gas production. It has also stressed that, at current price levels, there is no windfall to tax. Brent Crude prices have fallen more than 40% from their 2022 peak, underscoring the market normalization that critics say the EPL does not reflect.

EnQuest noted a reported statutory net loss of $173.5 million for the six months ending September 24, when including a $123.9 million non-cash adjustment tied to the EPL extension. The same period a year earlier showed a statutory net profit of $30.3 million. Chief executive Amjad Bseisu said the company remains committed to investing in its UK business but that the near-term pivot toward investment outside the UK reflects the impact of successive UK governments’ fiscal policy on the North Sea. He argued that the UK remains the only country worldwide continuing to levy a windfall tax on energy profits, even as the OBR acknowledges prices are at or below historical norms and, therefore, that a windfall does not exist.

Earlier this year, the government opened a consultation on a new, permanent Oil and Gas Price Mechanism intended to replace EPL when it expires in 2030. The aim is to create a predictable framework that taxes unusually high oil and gas prices to ensure a fair return for the nation during price shocks while still protecting investment in the North Sea. Bseisu said the government now has a tool to revitalise the sector—one that could increase investment, boost tax revenues for the Treasury, strengthen the UK’s energy security, and protect jobs across the country, which he said are being lost at a rate of about 1,000 per month.

EnQuest shares slid 3.1% in early trading, trading at 11.38 pence, extending losses for the year. The group said its 2025 results reflect the challenging price environment and the ongoing transition away from a UK-centric investment base. The company’s strategy in 2025 and beyond includes progress toward expanding production in Southeast Asia, where it aims to grow net production to roughly 35,000 barrels of oil equivalent per day by fiscal year 2030, underscoring a broader pivot that investors are watching closely.

Analysts weighed in on the results, with Shore Capital’s James Hosie saying the first-half performance was broadly in line with estimates and that operating results were robust across EnQuest’s portfolio. He noted that while full-year guidance remained unchanged, management would likely emphasize growth ambitions in the UK and Southeast Asia during the next earnings presentation. Hosie reiterated a Buy rating on the stock, with a fair value estimate of about 28 pence per share.

The tension between ambitious growth plans and a volatile regulatory environment underscores a broader debate facing the UK energy sector. Proponents of reform argue that a more predictable, globally competitive fiscal regime could attract and sustain investment in the North Sea, support jobs, and contribute to the nation’s energy security. Critics contend that windfall taxes are necessary to ensure that energy profits are shared with the public, particularly during periods of price spikes. The coming months are likely to see renewed policy debate as industry players assess the implications of the EPL extension, the potential new mechanism, and the evolving global energy landscape.