The chairman of independent North Sea operator Kistos (AIM: KIST) has told Energy Voice the major UK political parties are in a “rush to the bottom” on energy policy.
Andrew Austin said Kistos has had to walk away from numerous deals in the UK North Sea due to fiscal uncertainty surrounding the windfall tax and investment allowances.
“At the moment, the wider North Sea is not the most attractive place to invest because we have a wider level of fiscal instability and recent comments from the Labour Party do not help that position,” Mr Austin said.
“We have walked away from more deals in the UK sector of the North Sea [recently] than we’ve walked away from anything in the last 15 years, because of a lack of certainty of where we stand.
“And each time we think we have certainty, someone moves the goalposts and that’s not helpful.”
North Sea investment ‘incredibly difficult’
Kistos holds a 20% non-operated working interest in four producing North Sea fields, as well as the Shetland Gas Plant and associated infrastructure, alongside operator TotalEnergies.
Mr Austin said operating in the UK has been “incredibly difficult” due to continued changes in the Energy Profits Levy (EPL) introduced by the current Conservative government.
In addition, Labour has promised further changes to the EPL should it win the next election, arguing it is “right to tax” oil and gas companies to deliver its scaled-back green investment pledges.
“It was difficult when it got changed from ‘EPL one’ to ‘EPL two’, and I think it’s fair to say that us and a number of other [companies], while not thinking it was the best environment, which it obviously isn’t, had got ourselves to a place where we didn’t think the investment allowance and ‘EPL two’ was going to change again,” Mr Austin said.
“And then we suddenly found ourselves in a position where that was changed again, and always being rumoured to be changed again.
“If you talk to people about rigs, if you talk to people about provision of services in the North Sea… no one has got the confidence to invest in the UK sector.”
‘Stop changing your minds’
He pleaded with UK political leaders to “stop changing their minds all the time” when it came to energy policy and focus on providing certainty and clarity.
“Stop changing your minds and just get on with giving some certainty that allows people who want to invest the time and space to have certainty on what the fiscal terms will be if they do invest, because otherwise they won’t invest,” he said.
Mr Austin said despite both major parties drawing comparisons between their North Sea tax policies and those in Norway, the situation in the UK is “completely different”.
“We have operations in Norway, it is completely different [there] because you have a much greater state of fiscal stability and you know that you’re going to get the amount of money you invest back,” he said.
“That is not the case in the UK.”
As the country moves closer to a general election, Mr Austin said North Sea firms are concerned about the prospect of still more policy changes to come.
“We’ll have to see what happens, but I think what’s happened over the last 18 months would suggest that you can’t, at the moment, rely on either side of the house to be consistent in their position,” he said.
‘Rush to the bottom’ on energy
He said while a Labour victory “isn’t going to help” the investment environment in the UK North Sea, the party’s position is only “marginally worse” than that of the Conservatives.
“What both parties are doing at the moment is a rush to the bottom in terms of making sure that it is the least competitive [investment] environment, and I just don’t think that’s good for the UK,” he said.
© Supplied by PAMr Austin said that while the UK continued to require fossil fuels, it should produce them domestically to contribute to the UK economy rather than importing them from overseas regions with lower emissions and health and safety standards.
“From my perspective, I would rather see the UK continue to support its domestic energy position. But right now, neither side of the house is doing that,” he said.
Kistos moves into gas storage sector
Despite the ongoing political and fiscal uncertainty, Kistos is pressing ahead with acquisitions focused on the energy transition.
The company announced last week it had purchased two onshore gas storage facilities in Cheshire from EDF Energy for £25 million.
With gas storage options in short supply in the UK, Mr Austin said investing in the “absolutely critical” infrastructure will deliver an important asset for Kistos.
“There aren’t many things encouraging you to continue to invest in the UK right now,” Mr Austin said.
“But this is something that we can feel good about, and it’s also an asset that once the transition [away from gas] has happened and gas is moving out of the mix, we can repurpose with either hydrogen or compressed air and continue to use for the good of the country.”
Fast-cycle gas storage gives ‘flexibility’
Mr Austin said compared to other UK gas storage facilities, like Centrica’s Rough field, the Hill Top and Hole House sites are “much faster cycling”.
Hill Top alone comprises 11% of the UK’s fast cycle gas storage capacity, providing Kistos with one of the most “flexible energy batteries” available in the UK, Mr Austin said.
© Supplied by CentricaWith power sources like wind and solar set to play an increasingly important role in UK power supply, Mr Austin said the speed and flexibility of available gas storage will also become more important due to the intermittent nature of renewables and the remote locations of wind farms.
Kistos plans to engage with the existing team at the storage sites in the coming weeks to determine the way forward in the longer term.
But Mr Austin said the company does not have any immediate plans for repurposing, or to restart the currently non-operational Holehouse site.
And while the UK North Sea investment environment remains challenging for the company, with progress on several of its West of Shetland projects waiting for the go-ahead from partner TotalEnergies, Mr Austin said Kistos will continue to keep its eye out for further acquisition opportunities.
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