British banks stopped financing smaller independent Oil & Gas producers

Virtually all British banks have stopped financing smaller independent oil and gas producers, responsible for the bulk of output and investment in the North Sea, Neptune Energy has revealed.

Changes in the UK tax regime, in particular a windfall levy on oil and gas that was recently extended up to March 2029, has negatively impacted the ability of the country’s independent oil and gas producers to raise money.

Bank financing for the sector is typically based on the value of reserves, which drops when there’s an increase in the tax rate. The future of the North Sea is now dependent upon the US banks or Norwegian banks and not on the British banks.

If you aren’t able to generate cash from your existing business, you aren’t able to recycle that capital and make investments in the energy transition, Julian Regan-Mears, vice president of strategy, integration and corporate affairs at Neptune Energy, said at an event hosted by Offshore Energies UK in London.

Neptune Energy operates British largest single producing gas field supplying around 6% of British gas. These smaller producers are now turning to USA and Norwegian banks for financing.

Last year, Lloyds denounced fossil fuel financing, joining a growing list of financial institutions in Europe to do so. Lloyds–Britain’s biggest bank–announced that it has updated its climate policy and will no longer support direct financing to develop new oil and gas fields.

The banks said its new policy bars project financing or reserve-based lending to greenfield oil and gas projects, although the policy does not rule out providing general lending to companies in the sector.

Not surprisingly, climate groups hailed Lloyds move and called on other British banks to follow suit. Lloyds is not alone. Large European banks have cut financing to fossil fuel companies by nearly 30% amid mounting shareholder pressure.

The situation could not be more different in the USA where smaller regional banks have significantly boosted their lending to oil and gas firms over the past two years.

To wit, Bloomberg has reported that regional banks BOK Financial, Truist Securities, Fifth Third Securities, Citizens Financial and US Bancorp have seen their combined loans to oil and gas companies jump over 70% since the beginning of 2022, compared to the previous six years.

The five banks now rank among the world’s top 35 banks in terms of the number of deals they have signed with oil and gas companies.

On a global scale, fossil fuel financing remains dominated by four U.S. banks–JPMorgan Chase, Citi, Wells Fargo, and Bank of America–who together account for one quarter of all fossil fuel financing over the last six years.

Indeed,  Rainforest Action Network has lambasted JPM as the world’s worst banker of climate chaos by far. But these Wall Street banks are hardly alone.

According to a recent analysis from the Private Equity Stakeholder Project and Americans for Financial Reform Education Fund (AFREF), the eight largest buyout firms have put nearly as much money into coal, oil and gas as the big banks.

Last year, PE firms including Apollo Global Management, Carlyle Group, Blackstone Group, Brookfield Asset Management, KKR and Warbug Pincus, collectively oversaw $216 billion worth of fossil-fuel assets–on par with the amount of money that big banks put into fossil fuels.

Indeed the 10 largest private equity funds have 80% of their energy investments in fossil fuels. The billions of dollars private equity firms have deployed to drill, frack, transport, store, refine fossil fuels and generate energy, stand in stark contrast to what climate scientists.

International policymakers have called upon to align our trajectory to the 1.5 degrees Celsius warming scenario, states a report cosigned by major climate groups including Greenpeace, Natural Resources Defense Project, Sierra Club and the Sunrise Project.

Oil Price.com / ABC Flash Point News 2024.