Oil windfall tax prompts BP to rethink strategy

BP Plc said yesterday that it would look again at its plans in the UK, raising questions about whether a £5 billion windfall tax on oil and gas profits announced by the government included enough incentives to preserve investment.

The statement raises the possibility of reversal by the London-based oil major, which has previously said that planned investments of £18 billion ($23 billion) in the country by 2030 weren’t contingent on whether or not the government raised taxes.

“The announcement is not for a oneoff tax — it is a multiyear proposal,” BP said in an emailed statement. “We will now need to look at the impact of both the new levy and the tax relief on our North Sea investment plans.”

The UK government announced on Thursday that it would impose a 25% windfall tax on oil and gas companies, bowing to mounting pressure to support Britons facing a record squeeze on living standards.

Chancellor of the Exchequer Rishi Sunak appeared to try to head off criticism that the measure was anti-business, including in the proposal an 80% new-investment allowance that means energy companies can reduce the amount they pay if they commit to fresh capital expenditure.

“The major risk to the UK North Sea oil and gas industry is that international companies like BP and Shell Plc, which are scaling back fossil-fuel investments in favour of low-carbon energy, see the UK as less attractive following this announcement,’’ JP Morgan’s managing director for global energy Christyan Malek said in an interview. “A windfall tax creates unpredictability for projects that take years to develop.”

While most companies acknowledged that Sunak was responding to an urgent real cost-of-living crisis, the industry reacted with a mixture of caution and disappointment.

Shell said that “a stable environment for long term investment” was fundamental to its plan to invest as much as £25 billion into the UK’s energy system in the next decade.

“The chancellor’s proposed tax relief on investments in Britain’s energy future is a critical principle in the new levy,” a Shell spokesperson said.

“Smaller explorers that are more focused on the UK and have smaller revenue streams will be hit harder by the levy,’’ said Malek.

Companies such as Serica Energy Plc, which have low proportion of capital expenditure compared to earnings before interest, depreciation, amortisation, and exploration would also feel a bigger impact than most, Stifel analyst Chris Wheaton wrote in a research note. Serica Energy declined to comment. EnQuest Plc, which produces more than 90% of its oil and gas in the UK, said it was “disappointed with the implementation mechanics” of the new levy.