United Kingdom Dips into Oil Gusher
Blame it on high oil prices. No one feels bad for Big Oil these days.
The United Kingdom is the first major economy government to impose a tax on oil company profits since the onset of this secular bull market in 2002. The Cameron government is expected to reap about $3.2 billion dollars from the tax, designed to reduce the nation’s gas price by one penny per liter.
Over a dozen major oil companies have seen their stock prices correct sharply over the past 24 hours as the British government imposes an oil windfall tax. Other governments are expected to follow.
One of the worst hit oil stocks on Wednesday in North American trading was Canada’s Nexen Inc. (Toronto-NXY), down 8% and declining another 1% this morning in Toronto. The Calgary-based company draws almost half of its total production and nearly 75% of cash-flow from the region.
Like other major market economies, governments are growing desperate to raise tax revenues amid an austerity drive to cut spending. The U.K. has sought to reduce government spending, mainly in the civil services sector; in reality, the British are actually spending more this fiscal year, not less. The oil tax grab isn’t a surprise when considering the depth and context of England’s economic plight.
Meanwhile, North Sea oil is hard to find at this point. Several major oil companies have thus far failed to find any meaningful discoveries over the past several months; that leads me to believe that maybe the best way to make money in the North Sea is to avoid the major oil producers and instead, buy the oil services companies. Drilling rates are rising and daily lease rates are expected to stay elevated for years. I’ll bet on the drillers. They get paid big bucks regardless of the size of the find.
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