Oil price boost

Johnson rules out windfall tax despite BP profits

petrol prices
Petrol prices have rocketed in recent weeks (pic: Terry Murden)

Boris Johnson appeared to rule out a windfall tax on energy companies after BP pledged to pump billions into developing the energy sector.

The Prime Minister said such a tax would “discourage them from making investments we want to see, that in the end will keep prices lower for everybody”.

His comment, in a television interview, came after BP announced profit for the first quarter came in at $6.2 billion against $2.6bn for the same period last year and $4.1bn for the previous quarter.

A $24bn writedown of its 19.75% stake in Russian oil giant Rosneft and two other joint ventures pushed BP into a headline loss of $20.4 billion in the quarter.

The underlying replacement cost profit, the company’s preferred definition of net earnings, was driven by exceptional oil and gas trading and a stronger refining result. It exceeded analysts’ expectations of $4.49bn.

Bernard Looney
Bernard Looney: no change to strategy

BP also outlined plans to invest up to £18bn in the UK’s energy sector over the next eight years.

Chief executive Bernard Looney said the exit from Russia and the resulting write down “has not changed our strategy, our financial frame, or our expectations for shareholder distributions.”

But the company appeared to have announced the investment to head off calls for a windfall tax on energy companies to help ease the cost of living crisis facing households and businesses.

The government in Italy yesterday unveiled a €14bn package of support for vulnerable families and businesses facing surging commodity prices following the war in Ukraine.

It will be partly funded by a 25% windfall tax on energy groups profits, far higher than the 10% first planned.

Shares in BP were up is 1.81% in early trade.

Labour’s shadow chancellor tweeted: “The case for a one-off windfall tax on oil & gas producer profits cannot be ignored.”

Liberal Democrat Leader Ed Davey added: “The Conservative government’s refusal to introduce a windfall tax on the super profits of oil companies is becoming impossible to justify.”

But Ryan Crighton, policy director at Aberdeen & Grampian Chamber of Commerce, said: “While BP’s underlying profits in the first quarter of the year have more than doubled, the Treasury’s tax take from the industry has risen by nearly 700% over the same period.

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“Proponents of a windfall tax have said that it is only fair and right that oil and gas companies pay more taxes in good times. They are right, and energy companies are paying more, to the tune of £19million per day.

“We have said repeatedly that the windfall tax on North Sea profits is a blunt instrument that will achieve little apart from making the North Sea – where companies are already taxed at a rate of 40% – less attractive to investors.

“That would place jobs, tax revenues and our domestic energy security at risk, and also limit ability and appetite to invest in low the low carbon research and development we so desperately need. 

“These issues are crucial to our future prosperity and should not be used as pawns in a local election campaign. We again urge our politicians to take a pragmatic view and be wary that their words carry consequences for investment and confidence in a sector that supports hundreds of thousands of jobs.”

City reaction

“BP’s first quarter results will do nothing to quell talk of a windfall tax on oil and gas companies,” says AJ Bell investment director Russ Mould. 

“The oil giant might have hoped attention would focus on an apparent $20.4 billion loss – created by impairments linked to its exit of interests in Russia – but the strongest underlying profit in a decade of $6.25 billion was more revealing of the impact of surging oil and gas prices on the business.

“What feels like an achievement worth celebrating almost needs an apology by BP – and there may almost be an element of regret on its part that the numbers are so far ahead of forecasts.

“The argument for the windfall tax goes something like this – BP’s profit and cash flow is being artificially inflated by the war in Ukraine and ordinary people are already paying the price through much higher household bills.

“Shouldn’t BP, with its broader shoulders, share the burden? Particularly given it feels able to boost shareholder returns with an enhanced share buyback programme.

“It was no surprise to hear chief executive Bernard Looney talking about ‘backing Britain’ and flagging billions of pounds worth of investment in projects to boost domestic energy security.

“Whether this will be enough to stave off a new levy remains to be seen. The political pressure to do so is only likely to escalate as the cost of living continues to surge in the UK.

“The exit from Russia, while bringing with it considerable costs, arguably helps with the transformation of the group and strong cash flow is helping to bring down debt.

“BP has ambitious plans to become cleaner and greener but today’s update is a reminder that fossil fuels, with all the environmental and geopolitical mess they entail, remain central to the company for now.”

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