Docked in the Cromarty Firth near Inverness in northeast Scotland to produce and store up to 270,000 barrels of oil, Ping Petroleum’s ship is an imposing sight in a port packed with the components that will drive the British economy.

The Excalibur is a floating vessel with a diameter of about 60 meters and a height of about 45 meters, which is used near platforms to receive, store and process oil before it is transferred to tankers.

Ping bought the vessel in mid-2022, as energy prices soared following Russia’s large-scale invasion of Ukraine, and expected to use it for up to 15 years. But the introduction of a special tax on oil and gas companies in the UK and potential regulatory changes have prompted the company to postpone plans for a roughly £100 million refurbishment that would make the vessel one of the first to run on electricity.

Because of the higher levies, Ping is one of several smaller companies whose attempts to profit from the ageing British oil basin by taking over assets abandoned by major international oil companies now risk proving unsuccessful.

“(Policy uncertainty) reduces our willingness to spend money to get things done quickly, because if we spend money and the policy changes, we have to start all over again,” Ping Chairman Robert Fisher said aboard the ship. “People are leaving fields with significant reserves.”

The Labour government delivered on its election promise last month by raising taxes on oil and gas companies by three percentage points to 78 percent and extending the special tax by a year to 2030.

The move to raise taxes, first introduced in May 2022 by then Conservative Chancellor Rishi Sunak, sparked an outcry from industry bosses who warned it would hurt long-term tax revenues as more companies abandoned projects and laid off staff.

Before the Labour announcement, estimates published by the Office for Budget Responsibility, the financial regulator, predicted that tax revenues from the UK oil and gas industry would collapse from £9.8 billion in 2023 to £2.2 billion in 2029.

Business leaders have raised alarm over Labour’s plans to scrap the allowances that allow companies to deduct capital spending from tax, saying their move would exacerbate the decline in industry’s share of private investment.

The government had announced last month that it would announce the final details of its tax plans in its first budget on October 30, leaving the sector holding its breath.

Chris Wheaton, an analyst at investment bank Stifel, said Labour’s changes to the special taxes would raise about £4 billion more for the Treasury – less than the £6 billion the party is seeking to fund GB Energy, the new state-owned company that will invest in renewable energy. The government would then lose about £11 billion in tax revenue over five years, he estimated.

“If the government introduces the kind of special taxes it is talking about, it will devastate energy production in the UK because the tax revenue will make the industry uncompetitive,” Wheaton said. “This will lead to a dramatic decline in investment and therefore production and jobs, and will be a serious blow to energy security.”

The industry is already struggling with a sharp decline in production. According to the North Sea Transition Authority, production fell to 1.27 million barrels of oil equivalent per day last year from 4.33 million barrels of oil equivalent per day in 1998. The regulator estimates that production will fall to just 730,000 barrels of oil equivalent by 2030.

David Whitehouse, chief executive of industry group Offshore Energies UK, said the general uncertainty and the special tax had meant that “we have reached an all-time low in oil wells drilled in the North Sea so far this year and that basically means we are not seeing the investment that the sector needs”.

Labour’s opposition to new drilling licences has also put the party at odds with union allies such as Unite, which said the measures risked turning oil and gas workers into “our generation’s coal miners” before a “just transition” to cleaner forms of energy can replace the often highly paid and skilled jobs.

According to OEUK, over 55,000 jobs in the North Sea industry have been lost in the past five years, leaving just over 200,000 jobs remaining. However, climate activists argue that new drilling would neither protect jobs nor ensure energy security.

The UK Treasury said it would “extend and increase the Energy Profit Levy and remove the core investment allowances to ensure oil and gas companies contribute more to our energy transition”.

“We will work with the sector to ensure that workers are not put at risk by the transition over the next few decades,” it said.

The government’s position certainly has its supporters. James Alexander, chief executive of the UK Sustainable Investment and Finance Association, which promotes sustainable investment, said the three percentage point increase in the special tax “puts us in line with Norway and should act as a catalyst for private investment in renewable energy… It is exactly what we want to see.”

Trader Viaro Energy also focused on the North Sea in 2020, buying RockRose Energy for £248 million to expand its production.

CEO Francesco Mazzagatti said Viaro remained committed to the United Kingdom, but “uncontrollable decisions” by the last government had forced companies to “learn to plan for the unplanable.”

Back at Excalibur, where at least 200 jobs are on hold due to the delayed renovation, Fisher said his industry will play a critical role in the energy transition despite changing attitudes toward it.

“When we sold oil in the late 1970s and early 1980s, everyone wanted it,” he said. “Today there is a feeling that we are not needed as much anymore.”