BP to review all North Sea investment in light of windfall tax

BP was the first major energy company last night to say it would review investments in light of the government’s new windfall tax.

The FTSE 100 oil and gas producer said the tax was a “multi-year” proposal and it had to “assess the implications” for its investment assets in the North Sea.

Chief Executive Bernard Looney had previously hinted that the company’s plans to invest £18bn in the UK would not be affected by an upcoming profit heist.

The measures met with dismay in the industry, despite tax breaks on investments. Offshore Energies UK, the trade group, said they were a “step backwards” that would deter investment.

The government on Thursday bowed to months of pressure to help households grappling with soaring energy bills with a raid on the profits of producers enjoying soaring oil and gas prices.

Rishi Sunak, the chancellor, introduced a new energy profits tax that cuts the effective tax rate for oil and gas producers in the North Sea from 40 percent to 65 percent.

He said the measure is expected to raise around £5bn over the first 12 months, with the measure taking effect from Thursday.

It comes after Ofgem, the energy regulator, warned this week that household energy bills could hit £2,800 in October – after already rising 54 per cent in April.

The money will help the government buy households a new €21 billion support package.

Eight million low-income households are also set to receive a new one-off living cost payment of £650. It is on top of a £150 council tax refund paid out last month.

The additional support was welcomed by activists. National Energy Action said it “averts the darkest outcomes and gives some hope to the millions of energy-poor households across the UK”.

However, critics have expressed concerns that the sudden introduction of new taxes would discourage energy investment in the long term and hurt jobs and energy security.

Derek Leith, global oil and gas tax head at EY, warned the move would deal a “significant blow” to the UK oil and gas sector and risk damaging supply chain jobs.

Shell, BP’s FTSE 100 rival, said it had “consistently emphasized the importance of a stable environment for long-term investment”, adding it was “fundamental to our aim of investing between £20 billion and £25 billion in the UK over the next decade invest”. .

Shell posted £7 billion of profit in the most recent quarter, while BP made £5 billion, with oil and gas prices buoyed amid Russia’s war on Ukraine and recovery in demand since the pandemic.

Mr Sunak said it was “right that these companies, which are making extraordinary profits on the back of record world oil and gas prices”, are helping to support households.

Wood Mackenzie, the energy industry analyst, said the oil and gas sector in the North Sea will post $28 billion in profits this year.

“That would be by far the best return – for both industry and the state – since the formation of the North Sea.”

It said the industry would “not like the windfall tax,” but noted that no one expected the current high prices and “even after the tax hike, some of the price-driven windfall belongs to producers.”

The largest producers such as Harbor Energy, TotalEnergies, BP and Shell are most affected.

The Chancellor has raised the prospect that power producers could be the target of windfall taxes later this year, raising concerns that investment in new wind, solar and nuclear could be hurt.

BP said: “We know how difficult it is for people across the UK at the moment and recognize the need for Government to take action.

“As we have said before, we see many opportunities to invest in the UK in today’s energy security and tomorrow’s energy transition.

“Today’s announcement is not a one-off tax, but a multi-year proposal. Of course we now need to look at the impact of both the new levy and the tax breaks on our North Sea investment plans.” BP to review all North Sea investment in light of windfall tax

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