Big Oil has reacted to the news that Chancellor Rishi Sunak has finally opted to plough ahead with a windfall tax on North Sea profits.
BP (LON: BP) said it will have to look at the impact of the levy, which could run for several years, on its North Sea investment plans.
But Shell (LON: SHEL) is more optimistic, pointing to the investment relief included as part of the government measure.
After weeks of speculation, it was announced on Thursday that a “temporary” measure would be enacted to raise £5 billion – it will go towards helping low-income households cope with the cost-of-living rise.
The current headline rate of tax on oil firms will increase from 40% to 65% until commodity prices reach a “normal” level again – a cut off has been included at the end of 2025.
Senior oil and gas figures, including Deirdre Michie and Sir Ian Wood, have united to oppose the measure, with fears it will send “shockwaves” through the industry.
A spokeman for BP said: “We know just how difficult things are for people across the UK right now and recognise the Government’s need to take action.
“As we have said before, we see many opportunities to invest in the UK, into energy security for today and into the energy transition for tomorrow.
“Today’s announcement is not for a one-off tax – 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.”
Importantly the levy also includes a mechanism designed to boost investment, “so the more a company invests, the less tax they will pay”, Mr Sunak said.
A near-doubling of the investment allowance to 80%, on top of other measures, means firms will get 91 pence back per £1 spent for a total relief rate of 91.25%.
It comes after numerous North Sea companies announced large spending pledges in an effort to stave off a windfall tax.
Oil giant Shell appeared slightly more optimistic about the government’s proposals, and a spokesman for the company said: “We have consistently emphasized the importance of a stable environment for long term investment.
“This is fundamental to our aim to invest between £20 and £25 billion in the UK in the next decade, mostly in low and zero-carbon products and services, with a significant amount also focused on ensuring security of energy supply for the UK.
“The Chancellor’s proposed tax relief on investments in Britain’s energy future is a critical principle in the new levy.
“We recognize the burden that increased energy prices have across society, in particular on the vulnerable, and have hardship plans in place to help our customers.”