BP said it will examine the impact of the UK's oil and gas windfall tax before making new investment plans in the North Sea, noting that the levy is not the one-off measure it had been anticipating.
"It is 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," BP said.
The UK government unveiled plans on 26 May for a 25pc tax surcharge on oil and gas company profits that will last until the end of 2025 unless oil and gas prices return to "historically more normal levels" in the intervening period. The levy has an allowance built in for new investment.
With public pressure mounting on the UK government to assist households with soaring energy bills, BP had been anticipating a windfall tax of some sort, but the measures announced yesterday are potentially longer lasting than it expected. Prior to the announcement, the company said it planned to invest £18bn ($22.7bn) in the UK's energy sector this decade, mainly on non-hydrocarbon projects and assets. Up to a quarter of this capital investment is earmarked for BP's offshore oil and gas activities.
Chief executive Bernard Looney told the company's annual general meeting (AGM) earlier this month that BP would stick to its UK investment plans whether there was a windfall tax or not, but he warned that investing more than the £18bn would depend on "a stable fiscal environment".
In terms of final investment decisions (FIDs) on UK upstream oil and gas projects, BP does not have any significant greenfield developments on the horizon, although in the past it has mooted further expansion of the Clair oil field in the west of Shetlands area. The company has been pushing ahead with plans to develop the Murlach project in the North Sea, having submitted an environmental statement to the North Sea Transition Authority, but the development is yet to reach FID. A decision is expected later this year. Murlach — a project to develop 25.9mn bl of oil and 602mn m³ of gas — is a low-cost development that could easily tie back to BP's Etap hub in the central North Sea, Looney told the AGM.
Meanwhile, auditing and consulting firm Deloitte said Friday that although the windfall levy brings taxation on UK oil and gas companies to a headline rate of 65pc, the measure is unlikely to destabilise business confidence. It "includes a large investment incentive, meaning for every £2.2mn invested in the UK oil and gas sector, £1mn of the new levy will be offset", said Deloitte's head of tax and trade policy Amanda Tickel.
