Equinor reaffirms UK Rosebank oil field project plan despite tax levy

Leading oil and gas producer Equinor on June 23 reaffirmed plans to develop the 300-million barrel Rosebank field in UK waters, as the upstream industry said it would try to "mitigate" the damaging effects of a surprise tax hike on the sector.

The comments came after Chancellor Rishi Sunak met oil and gas sector heads in the industrial city of Aberdeen aiming to allay concerns about the 25 percentage point 'energy profits levy' announced May 26, and stressing its temporary nature.

In an emailed comment, Norway's Equinor, which has sizable UK investments and submitted plans for a new UK hydrogen project the day before, said it was "aligned with" criticism voiced by industry group Offshore Energies UK.

However, a spokesperson stressed Equinor's commitment to the long-delayed Rosebank project, saying it had outlined its plans for Rosebank at a separate event with 140 supply chain companies on the same day as the meeting with Sunak. The Norwegian-state controlled company is a major exporter of Norwegian gas to the UK.

The Equinor spokesperson did not say when a final investment decision could be taken on Rosebank, although he noted the Rosebank licenses were recently granted a two-year extension to May 31, 2024.

"We have today reiterated our commitment to progress and deliver the Rosebank project. Rosebank is an important field development, for us and our partners Suncor and Siccar Point, and in our view also an important project for Scotland and the UK," the spokesperson said.

"Our ambition is that Rosebank will create local value through highly skilled jobs, strengthen UK energy security, create jobs and revenue for decades ahead and be a low-carbon, energy-efficient field in line with the North Sea Transition Deal," he said, the latter a reference to a 2021 'deal' setting out a path to net-zero emissions for the country by 2050.

Equinor also outlined some details of its plans for Rosebank, which lies in 1,100 meters of water west of the Shetland Islands and has similarities to Cambo, a high-profile project that Shell backed away from amid environmental protests in 2021.

Equinor said the project would be conducted in two phases and would reuse an existing Floating Production Storage and Offloading vessel from another field, with 12 wells to be drilled overall. Seven would be producing wells and five injection wells would support pressure levels. Rosebank crude is medium in gravity, with an API of 36.5.

While crude will be loaded directly onto shuttle tankers, gas will be transported through a tie-in to the existing West of Shetland Pipeline that takes gas from BP's nearby Clair and Schiehallion heavy oil fields to Sullom Voe.

Tax mitigation

Separately, Offshore Energies UK reiterated its criticism of the energy profits levy, saying it undermined confidence among investors and would increase their borrowing costs.

The UK authorities have said companies can avoid much of the extra tax levy if they invest, entitling them to tax reliefs, although the sector has raised concerns that the relevant relief is not available for non-oil and gas projects.

"This sudden change in tax policy... risks undermining the UK's hard-won reputation for fiscal stability," OEUK said.

"The Energy Profits Levy is an unexpected new tax that changes the basis for investments. We had a candid and constructive meeting with the chancellor to discuss these issues and our industry leaders were clear about their concerns," OEUK CEO Deirdre Michie added.

"We will work constructively with the UK government and do our best to mitigate the damage this tax will cause, but if energy companies reduce investment in UK waters, then they will produce less oil and gas. That means they will eventually be paying less taxes and have less money to invest in low-carbon energy."

Sunak's office said he had "emphasized the importance of the oil and gas industry" and its role in the energy transition, stressing he wanted "continued investment" in the sector, evident in a "generous allowance for investment in oil and gas."

Sunak had "reiterated the temporary nature of the Energy Profits Levy," his office added, pointing to assurances that the levy will be phased out as oil prices "return to historically more normal levels" and that the draft legislation features a 'sunset clause' removing it at the end of 2025.

Equinor said on June 22 that it had submitted a bid for the second of two low-carbon hydrogen projects in the Humber region on England's east coast, with the new project to come onstream in 2028 and produce 1.2 GW/year of hydrogen.

Together with the 600 MW H2H Saltend project on the north bank of the Humber, "these projects alone could deliver 18% of the government's 10 GW of hydrogen production capacity by 2030 target, making the Humber the UK's foremost hydrogen hub," the company said.