Q1 - 2024, page-229

Has Labour lost its mind? They have forecast that their amendments to the EPL will only lead to a minor decrease in capex while energy experts claim it will "trash Oil and Gas production". Labours proposed amendments to the EPL means that nett capex costs for existing producers increase from $9m to $54m per $100m. (while the existing EPL tax on profits increases from 75% to 78%) Previously viable projects have been rendered un-investable by these proposed amendments.

Under the terms of the RR/HHR JV RR is responsible for the majority of project capex. Under the original capex budget RR would tip in $538m of the $650m. RR could claim the Investment Allowance of 91% so their net costs were only $49m. Any overruns would also receive the allowance so a $100m overrun would cost $9m nett.

Under Labour the capex allowance would revert to 46% tax meaning RR nett costs would blow out to $290m and a $100m overrun would cost $54m. Effectively nett capex under Labour would blow out by nearly $250m. Until the policy changes or Labour doesn't win the election RR would defer any project capex. All producers that had been considering spending capex would be faced with similar issues.

Labour have already had to drop the backdating of the windfall tax and their green investment targets. IMO they will need to amend and/or walk back their amendments to the EPL. They have forecast only a marginal decrease in capex based on their amendments and IMO these forecasts will not withstand any proper examination.

At 1.2c it looks like the market is pricing Labours policy into the SP. An amendment would hopefully bring the price back to the 2.2-2.9 channel. I never thought I would be wishing for a return to 2.2+.