LONDON (Reuters) – Britain’s tax on the windfall profits of oil and gas producers will not be applied if the average price of these two commodities bottoms out for six consecutive months, the Department of Finance said on Friday, a measure taken by the government with the objective of strengthening energy security.

The British government introduced its Energy Profits Tax (EPL) in May 2022, two months after the Russian invasion of Ukraine led to rising energy prices.

Utilities have warned that the level of taxation could lead to reduced production.

The initial rate of 25% of the EPL was increased to 35% in November, which resulted in an overall tax burden of 75% being applied to companies in the sector.

Windfall tax will now only be waived if, for two consecutive quarters, average oil and gas prices fall to a level equivalent to or below $71.40 (€66.32) per barrel for oil , and for gas at 0.54 pounds (0.63 euros) per therm, or 0.0214 euros per kilowatt/hour.

The government specifies that this floor should not be reached by the expiry date of the exceptional tax in March 2028, based on the forecasts of the Office for Budget Responsibility.

Benchmark Brent crude oil prices fell from a peak of around €117.42 per barrel in March 2022 as a result of Russia’s invasion of Ukraine to around €70 per barrel. They have been evolving since the beginning of the year in a range between 65 and 83 euros per barrel.

British North Sea oil and gas producers, including TotalEnergies and Harbour, said the tax would lead them to reduce investment in the basin.

(Reporting Sarah Young, with contributions from Shadia Nasralla and William James; Victor Goury-Laffont, editing by Kate Entringer)

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