The UK’s largest oil and gas manufacturer has informed staff that it expects to eliminate 350 onshore positions, citing the government’s windfall tax.

Since January, Harbour Energy has been reviewing its operations after announcing that it would reevaluate its future activity in the UK.

The overwhelming majority of its 1,200 onshore employees in the UK are in Aberdeen.

The company stated that it was working diligently to mitigate the effects of workforce reduction.

The statement said, “When we announced the review, we said that due to energy profits, which results in an effective tax rate of 75% in the UK regardless of the level of oil and gas prices on the market or realized, we have had to reevaluate our future activity level in the UK.”

“Our March annual report stated that this would ‘lead to a significant reduction in our UK personnel.”

“We are working diligently to mitigate the effects of this reduction, for instance, by freezing recruitment and launching a voluntary redundancy program. These figures exclude corporate and international positions based in the United Kingdom, which are still under review. “Nor do they include our offshore organization, where we anticipate the effects to be much less severe. We are conducting the review with fairness and consideration for all those affected by this information.”

According to HM Treasury, the Energy Profits Levy establishes a balance between funding the cost of living support from excess profits and encouraging investment to strengthen the UK’s energy security.

“We have made it clear we want to encourage reinvestment of the sector’s profits to support the economy, jobs, and energy security, which is why firms will pay less tax the more they invest in the United Kingdom.”

Freya Aitchison of Friends of the Earth Scotland stated that blaming the windfall tax for job losses is “further evidence that the oil and gas industry continues to prioritize company profits over the needs of workers and communities.”

She stated, “To provide workers with a truly secure future, we require a swift and equitable transition from volatile oil and gas to decent green jobs in the renewable industry.”

Ryan Crighton, policy director at the Aberdeen and Grampian Chamber of Commerce (AGCC), expressed his organization’s sympathies for the unemployed.

How is the windfall tax implemented?

Recently, the profits of energy companies have skyrocketed, initially due to rising demand after Covid restrictions were lifted and then as a result of Russia’s invasion of Ukraine, which drove up energy prices. Prime Minister Rishi Sunak enacted the 25% Energy Profits Levy as chancellor.

Current Chancellor Jeremy Hunt announced in the fall that it would increase to 35% beginning in January 2023 and lasting until March 2028. It was originally scheduled to conclude in 2025. The levy applies to profits from extracting oil and gas in the United Kingdom but nothing else, such as refining oil and selling gasoline and diesel at service stations.

In 2022, Harbour Energy reported pre-tax profits of $2.5 billion (£2.1 billion).

However, taxes, including £1.5 billion set aside for the Energy Profits Levy, reduced the company’s after-tax profit to £8 million.

Decreased debt

Harbour stated in its previous annual report that it “substantially increased production” and improved margins in 2022. However, chief executive Linda Cook stated that the levy had “disproportionately affected independent oil and gas companies focused on the UK.”

She added, “For Harbour, the largest oil and gas producer in the United Kingdom, it has nearly wiped out our annual profit. This has led us to reduce our investment and personnel levels in the United Kingdom.

Given the country’s financial instability and investment outlook, this has strengthened our strategic objective to expand and diversify internationally.

The company’s net debt, excluding certain fees, decreased from £2.3 billion to £0.8 billion in 2022.

Harbour distributed £553 million to shareholders, while the proposed ultimate dividend was £100 million.

A new £200 million share buyback proposal was also disclosed.