Will The Budget Bail Out Premier Oil PLC, Ithaca Energy Inc. & Enquest Plc?

Will today’s budget trigger big gains for Premier Oil PLC (LON:PMO), Ithaca Energy Inc. (LON:IAE) and Enquest Plc (LON:ENQ)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in Premier Oil (LSE: PMO) rose by more than 15% on Tuesday, as investors piled into the stock in the expectation that Wednesday’s Budget will include a package of North Sea tax cuts that could help turnaround the firm’s fortunes.

The government has already indicated that the Budget will contain measures aimed at supporting activity in the North Sea, so in this article I’ll take a look at what these could be, and whether they might help Premier, and two of its North Sea peers, Ithaca Energy (LSE: IAE) and Enquest (LSE: ENQ).

What’s on the cards?

Two changes are expected in today’s Budget.

The first is a cut to the supplementary charge. This is an additional tax rate that oil firms pay in addition to corporation tax. In 2011, when oil prices were high, the supplementary charge was increased from 20% to 32%, in order to boost tax revenues from the North Sea.

The industry argues that this increase should now be reversed to reflect lower oil prices and discourage operators from decommissioning unprofitable fields early.

However, a cut here will do little to help operators who are reluctant to spend money on exploration and developing new projects.

To address this, the government is expected to simplify and update the investment allowance, which allows operators to claim tax relief on exploration and development spending.

Will this be enough?

I don’t think investors should expect a sudden transformation in the 2015 outlook for North Sea oil firms.

Any change to the investment allowance is expected to apply to new expenditure only. This means that committed spending, such as the $600m Enquest plans to spend in 2015, is unlikely to benefit.

However, a change to the investment allowance should encourage longer-term activity, when the price of oil starts to recover.

A cut to the supplementary charge ought to improve cash flow slightly for each firm, by reducing the tax liability associated with their current North Sea production. As all three firms approach peak debt levels this year, this should be helpful.

Overall, I see this as a small benefit, relative to the size of each firm’s debt and spending commitments.

Sell the North Sea?

I’m not rushing to invest in North Sea oil stocks. In my view, the oil rout may have another few months to run, and there are likely to be other attractive buying opportunities further down the line.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »