Rishi Sunak demands oil and gas companies increase UK investments

Chancellor Rishi Sunak is demanding North Sea oil and gas companies agree to a significant boost to their energy investments in the UK to avoid being hit by a windfall tax.

Sunak does not want to introduce the levy — he has warned it would deter investment — but he is coming under increasing pressure from MPs to impose the tax to help households struggling with soaring energy bills.

The chancellor is looking to oil and gas companies to raise their capital spending on UK projects to boost the country’s self-sufficiency in energy after BP and Shell reported big increases in quarterly profits last week, according to Sunak’s allies.

“We want to see firms come forward with ambitious investment plans as soon as possible,” said one ally.

Investment in the North Sea by energy companies has fallen 90 per cent since 2014, according to OEUK, the trade body for Britain’s offshore oil and gas industry, and capital spending is expected to at most plateau in the coming years.

Companies including BP and Shell have made recent statements about future investments in the UK, partly focused on exploration and development in the North Sea but also including spending on renewable energy and other low carbon projects.

But Sunak’s team does not believe these companies are investing enough and wants to see them commit to more detailed plans beyond their existing ones, according to the chancellor’s allies. BP and Shell declined to comment.

Shell last week reported a record $9.1bn of adjusted profits for the first quarter on the back of soaring prices for oil and gas.

Europe’s biggest energy company has said it plans to invest between £20bn and £25bn in the UK over the next decade — with about 75 per cent focused on low and zero carbon projects including offshore wind, hydrogen and electric vehicle infrastructure.

Shell has not disclosed how much tax it expects to pay in the UK this year.

Tax refunds related to the decommissioning of old North Sea oil platforms meant that rather than paying revenues to the UK government on its upstream operations Shell received $121mn from the Treasury in 2021, following similar rebates in 2018, 2019 and 2020.

BP last week reported underlying profits of $6.2bn for the first three months of the year, its best performance since 2008.

Bernard Looney, BP chief executive, said his company’s planned £18bn of investment in the UK between now and 2030 represented a significant increase on its previous spending in the country.

But it was not immediately clear how much of that sum constituted new investment in response to rising profits, according to analysts. One Treasury insider queried whether BP had announced any additional investment.

BP expects to pay up to £1bn in taxes on its North Sea operations in 2022.

Looney said last week he would continue with the £18bn of planned investment in Britain this decade even if the government bowed to calls for a windfall tax.

His comments last year that BP had become a “cash machine” were followed by demands by Labour and the Liberal Democrats for a windfall tax on energy companies.

Sunak’s position as chancellor has been considerably weakened in recent weeks, following his poorly received Spring Statement and a furore about his wife’s tax perks because of her non-domiciled status. “He’s a diminished figure,” said one minister.

His ability to resist a windfall tax on energy companies in the face of growing political pressure may be limited, unless they give him some political cover by increasing their investment plans.

William Hague, former Conservative leader, said last week that a one-off levy on oil companies was not a “crazy idea”, adding that the argument had gained some ground within his party.

“Where you get a huge additional profit, just because the global price of oil has changed, well, then there is actually a stronger case for it,” he added.

John Allan, chair of Tesco, said on Tuesday the case for a windfall tax on energy companies was now “overwhelming”.

He told the BBC the tax was “the single biggest thing that could be done” to raise money to help struggling consumers.

Allan said oil industry executives were already expecting it. “I doubt they would actually be much fazed by it,” he added.

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