• Uncertainty in UK gas sector due to changes in taxation policy proposed by the UK Labour Party 
• UK Labour Party has outlined the potential increase in taxation and reduction of tax relief for UK gas developments if elected in the pending UK election. 
• The Labour Party has scrapped plans to invest £28 billion per year in green spending and instead pledged £23.7 billion over five years of which £10.8 billion would be paid for by an increase in the Energy Profits Levy (EPL), resulting in a headline tax rate of 78% on gas production profits, increased from 75%. 
• Labour has proposed the cancellation of the “investment allowance” on the EPL which currently provides oil and gas producers with 91.4% tax relief on capital expenditure (reducing to approximately 46%) 
• Hartshead are presently assessing project economics associated with proposed Labour party tax changes 
• Project timeline currently uncertain following possible delay to award of contracts for capital items 
• UK NBP gas prices (`60p/therm) and futures have softened, distant from the heights of 2021/2022 (>500p/therm) and 12-month high of 136.7p/therm in Oct'23, due to an unusually mild winter in Europe leading to near record predicted European gas storage inventories at the exit of the winter season 
• Phase I Development Field Development Plan (FDP) currently sits with the North Sea Transition Authority (NSTA) and is awaiting updates from HHR on route finalisation 
• Application decision for the UK 33rd Offshore Licensing Round expected in H1 2024 
• Current cash balance of over $A 23 million

Hartshead Resources is reviewing the project economics and timeline associated with its Phase 1 development plan, given the proposed changes in taxation policy from the UK Labour Party.

Labour has proposed increasing the Energy Profits Levy (EPL), from 35% to 38% leading to an increase in the headline tax rate to 78%, up from 75%. Also included in the policy proposal is the removal of the investment allowance on the EPL. Investment allowances on other taxes (Ring Fenced Corporation Tax and Supplementary Charge) is planned to remain. The removal of the investment allowance on the EPL will reduce the tax relief on capital investments from 91.4% to approximately 46%. First year capital expensing is proposed to remain.

Given that the Labour Party are currently significantly ahead in polling, with elections to be held prior to 28 Jan 2025, Hartshead is presently assessing project economics associated with the proposed Labour party tax changes. 

Additionally, UK NBP gas prices (`60p/therm) and gas futures have softened from their 12-month high of 136.7p/therm in Oct'23, due to an unusually mild winter in Europe leading to near record predicted European gas storage inventories at the exit of the winter season.

The project timeline is currently under review, however the likely delay in awarding of key contracts for capital items associated with the long lead items for development would result in a delay to first gas, previously scheduled for 2025.

Chris Lewis, Hartshead CEO, commented: 
“The announcement from the Labour Party on the 8 th of February was disappointing for the Company, our Partner, and our Shareholders as it introduces uncertainty into our development project, which before then had been moving forward with significant momentum. The danger is that these proposals will cause a flight of capital to other jurisdictions, decimate the skills and supply chain required for the UK to lead the energy transition and result in the loss of tens, if not hundreds of thousands of jobs.

We are working with industry bodies, industry partners, contractors, unions, MPs and other stakeholders to understand the precise plans and to highlight the danger of damaging and self-defeating policy.

As the situation develops and becomes clearer, I look forward to updating shareholders once more.”

KeyFacts Energy: Hartshead UK country profile