Ithaca Energy Expands to Canada with $650 Million Deal Amid UK Tax Concerns
The FTSE 100 company is acquiring North American assets in its first international move, citing high taxes in the UK North Sea.
Ithaca Energy, a British oil and gas company, is investing £650 million in Canadian waters by acquiring three oil assets off the east coast of Newfoundland and Labrador from Suncor Energy. This marks Ithaca's first international acquisition as it seeks to diversify production and resource base away from the UK North Sea, where the industry faces significant taxation and opposition to new drilling.
Ithaca CEO Yaniv Friedman stated that the deal aligns with the company's growth strategy, calling it the "next era of growth" for Ithaca. The company, based in Aberdeen, joins the FTSE 100 index and saw its shares rise nearly 4% in early trading following the announcement. The acquisition comes as the UK oil and gas industry grapples with a challenging fiscal environment.
Firms operating in the UK North Sea are subject to an effective tax rate of 78% on profits. This rate includes a 38% energy profits levy, originally introduced in 2022 at 25% and extended to 2030 by the current government. The industry argues that these high taxes, coupled with a push towards renewables, are making operations increasingly unviable and have contributed to job losses. A report last month warned that 25,000 jobs have been lost in the sector since the current government took power.
This move by Ithaca also follows BP's decision to put its entire North Sea business up for sale, ending 60 years of production in the region. BP's chief executive cited the North Sea's lack of competitiveness and urged for the scrapping of the windfall tax.
Ithaca's acquisition of Canadian assets is seen by industry analysts as a strategic move to establish a foothold in the North American market. The deal includes a potential further payment of up to £190 million, contingent on oil prices. Analysts suggest this international expansion may shift Ithaca's focus away from potential bids for BP's UK assets.
Investment director at AJ Bell, Russ Mould, commented that the deal offers diversification and could be a precursor to further acquisitions in North America. He noted that Ithaca has the financial backing to pursue such deals, although he cautioned investors about the pace of acquisitions.
Ithaca Energy's strategic shift to international waters, particularly Canada, highlights the ongoing challenges faced by the UK's North Sea oil and gas sector due to fiscal policies and regulatory environments.