BP To Review Investment Plans As UK Adopts Oil Windfall Tax

BP said it will look again at its plans in the UK, as a £5Bn windfall tax on oil and gas profits announced by the government included enough incentives to preserve investment.

BP Plc said it will 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 opens up 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 UK government announced on Thursday that it will 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, which are scaling back fossil-fuel investments in favor 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,” Malek said.

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.

Most analysts expected smaller explorers and producers, so-called E&Ps, to be hit much harder than majors.

Harbour Energy Plc, a relative minnow globally but the biggest producer in the UK, may face about £840 million in extra costs from 2022 to 2024, Stifel analyst Chris Wheaton wrote in a note. While Harbour’s investments offset some of the tax impact, “this could well incentivise the company to look more closely at acquisitions outside the UK,” he said.

Harbour wasn’t immediately able to comment.

Companies such as Serica Energy Plc, which have low proportion of capital expenditure compared to earnings before interest, depreciation, amortization, and exploration would also feel a bigger impact than most, according to Stifel. Serica Energy declined to comment.