BP has said it will review its investments in the North Sea after the government unveiled a windfall tax on oil and gas operators.
The chancellor, Rishi Sunak, laid out plans on Thursday for a 25% tax increase to taxes on North Sea energy companies, in a move that is expected to raise £5bn.
A sunset clause in the legislation means that Sunak’s “energy profits levy” will only be phased out when oil and gas prices return to historically more normal levels or by December 2025.
BP said on Thursday, after the London stock market closed: “Today’s announcement is not for a one-off tax – it’s a multi-year proposal. Naturally, 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 company’s chief executive, Bernard Looney, had said earlier this month that none of BP’s planned £18bn UK investments would be mothballed if a windfall tax were introduced.
Debate over whether to tax a share of the super-profits generated by high oil and gas prices had caused a split in government, with Sunak pushing to raise the money but Boris Johnson arguing it could stymie investments.
Looney’s comments on investments, and the lack of strong pushback from other companies, are believed to have encouraged policymakers to press ahead with the tax.
Rival North Sea operators have privately blamed Looney for igniting the debate. In February, he described BP as a “cash machine” for investors amid the energy crisis. “His comments that a windfall tax wouldn’t hurt investment and that it’s a cash machine have felt like he’s been goading the government,” a senior industry source said.
The windfall tax has been structured in a form that Sunak hopes will boost the Treasury’s coffers while also encouraging investment. Companies will receive a “super-deduction” of 91p of tax savings for every £1 they invest.
Industry sources said the rate was generous but that the process of getting licences and hiring oil rigs meant the tax regime might have finished by the time new projects have been approved.
BP and Shell’s shares both nudged up 1% as investors appeared relieved the tax was not more onerous.
Shell said a “stable environment for long-term investment” was required if it was to execute its planned investment of £20bn to £25bn in the UK over the next decade.
The government said the tax was not extended to electricity generators, as had been threatened, but that it could be in future.