THE IMPACT of the windfall tax on North Sea operators has been laid bare this morning after BP’s accounts revealed it is costing the firm almost £10million per day.
Annual accounts published today reveal that the energy giant has already taken a £1.5billion hit from the Energy Profits Levy, which was introduced by Rishi Sunak in the summer.
Subscribe to our daily newsletter
Why? Free to subscribe, no paywall, daily business news digest.
However, high energy prices helped the company double its annual profits to £23billion in 2022.
Last year, the UK Government introduced a windfall tax – called the Energy Profits Levy – to help fund its scheme to lower gas and electricity bills.
The windfall tax only applies to profits made from extracting UK oil and gas. The rate was originally set at 25%, but has now been increased to 35%.
Oil and gas firms also pay 30% corporation tax on their profits as well as a supplementary 10% rate. Along with the new windfall tax, that takes their total tax rate to 75%, although companies are able to reduce the amount of tax they pay by factoring in losses or spending on things like decommissioning North Sea oil platforms.
In an update to investors this morning, BP said that that EPL has cost it $1.056billion (£879million) in the fourth quarter, which works out at an average of around £9.5million per day between October and December.
Across 2022 as a whole, it has cost the firm $1.8billion (£1.5billion), despite the UK accounting for just 10% of its global operations.
Andrew Griffith, Economic Secretary to the Treasury, said the windfall tax struck the “right balance” between helping families with the cost of living and securing the UK’s energy supplies.
“We’ve been very clear that we want to encourage re-investment of the sector’s profits back into the economy and that’s why the energy profits levy works in precisely the way it does,” he told BBC Radio 4’s Today programme.
However, there are fears it is driving investment away from the North Sea, which the basin’s biggest producer, Harbour Energy, confirmed earlier this month.
In a strategic update published alongside its annual accounts, BP chief executive Bernard Looney revealed that the firm plans to invest $8billion in oil and gas projects over the next seven years to keep “affordable energy flowing” during the transition to net zero.
It now expects to cut oil and gas production by 25% by 2030 – a drop on the 40% reduction ambition the company set out in 2019.
He said: “It’s clearer than ever after the past three years that the world wants and needs energy that is secure and affordable as well as lower carbon – all three together, what’s known as the energy trilemma. To tackle that, action is needed to accelerate the transition.
“And – at the same time – action is needed to make sure that the transition is orderly, so that affordable energy keeps flowing where it’s needed today. As an integrated energy company, bp is very deliberately set up to help on both counts.
“With three years of delivery and track record – we have increased confidence our strategy is working. And with today’s announcement we are leaning further in. We are growing our investment into our transition and, at the same time, growing investment into today’s energy system.
“In doing so – we see tremendous opportunity to create value. And it’s what governments and customers are asking of companies like us.”
