Ann: UK Southern Gas Basin - Operational Update, page-117

Like everyone else I'm still trying to make sense of what is happening to O&G in the North Sea right now. In December RR/HHR were pre-FID, a funding solution was available and FDP was underway. The EPL consisted of a 75% windfall tax offset by a 91% Investment Allowance. I had thought of the government as a quasi JV partner in the project, investing 91% of capex and receiving between 75% (until March 28) and 40% of EBITDA.

On my cashflow through to 2032 the project delivered $2,175m EBITDA with $920m to HHR/RR and $1,225 tax to the government.

Under Labours proposed changes to the EPL, 78% windfall tax and no Investment Allowance, the project EBITDA remains $2,175m however the split now is $560m to HHR/RR and $1615m to the government.

While individual projects have their own parameters the changes to the EPL will have a similar affect on all projects. Viable projects will be made unviable by Labours three little words "end Investment Allowances". Labours policy doesn't just affect HHR/RR it affects the whole industry and the industry now needs mount an argument rebutting Labours own policy costings. A deferral or cancellation of a single project (HHR/RR) will cost the UK government over $1bn (aud) in lost tax revenue over the next 10 years.

This is why I haven't sold up and moved on. I'm betting that Labours policy won't withstand proper scrutiny and that a case can be made that they will lose significant tax revenue and cost many jobs.

There is not much downside left in HHR it has already been gutted. If Labour re-instates, exempts current projects or uses any other mechanism to allow Investment Allowances and grandfathers that protection to HHR/RR then the project could move back to pre-FID status. It is a possible solution but not probable one yet.

All IMO, DYOR. There have been a enough negative posts, this is a positive one to balance them out.