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Rishi Sunak demands oil and gas companies increase UK investments 

 May 1, 2022

Chancellor Rishi Sonak is urging North Sea oil and gas companies to agree to significantly increase their energy investments in the UK to avoid over-taxing.

Sonak does not want to introduce the levy – he has warned it will deter investment – but is under increasing pressure from MPs to impose the tax to help households struggling with rising energy bills.

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

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“We want to see companies come up with ambitious investment plans as soon as possible,” said one of the allies.

North Sea investment by energy companies has fallen 90% since 2014, according to the OEUK, the UK’s oil and gas industry trading body, and capital expenditure is expected to reach a maximum level in the coming years.

Companies including BP and Shell have recently stated about future investments in the UK, which have partly focused on exploration and development in the North Sea, but also include spending on renewable energy and other low-carbon projects.

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

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Shell reported last week a record $ 9.1 billion of adjusted earnings in the first quarter amid rising oil and gas prices.

BP reported $ 6.2 billion in basic earnings in the first three months of the year last week, its best performance since 2008. © Chris Ratcliffe / Bloomberg

Europe’s largest energy company has announced it plans to invest £ 20bn to £ 25bn in the UK over the next decade – with around 75% focusing on bucket and zero carbon projects, including offshore wind, hydrogen and electric vehicle infrastructure.

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

Tax refunds related to the shutdown of old North Sea oil platforms have meant that instead of paying revenue to the UK government for its upstream activities, Shell received $ 121 million from the Treasury in 2021, following similar discounts in 2018, 2019 and 2020.

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BP last week reported basic earnings of $ 6.2 billion in the first three months of the year, its best performance since 2008.

Bernard Lonnie, BP’s CEO, said his company’s planned investment of £ 18 billion in the UK from now to 2030 represents a significant increase in its previous spending in the country.

But it was not immediately clear how much of that amount constitutes a new investment in response to an increase in profits, according to analysts. An acquaintance of the Ministry of Finance asked if BP had announced another investment.

BP expects to pay taxes of up to £ 1 billion on its activities in the North Sea in 2022.

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Lonnie said last week he would continue with £ 18bn of planned investment in the UK this decade, even if the government succumbs to calls for excessive tax.

His comments last year about BP becoming a “cash machine” were followed by demands from Labor and the Liberal Democrats to impose a tax on energy companies.

Sonak’s status as chancellor has weakened considerably in recent weeks, following a poorly received and stormy spring statement regarding his wife’s tax benefits due to her non-residence status. “He is a reduced figure,” said one minister.

Its ability to oppose excessive tax on energy companies in the face of increasing political pressure may be limited unless they are given political coverage by increasing their investment plans.

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Former Conservative leader William Haig said last week that a one-time levy on oil companies was not a “crazy idea,” adding that the argument had won part of his party.

“Where you get a huge extra profit, just because the world price of oil has changed, well, then there is actually a stronger reason for that,” he added.

John Allen, chairman of Tesco, said on Tuesday that the case for imposing a tax on energy companies is now “crucial”.

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

Alan said oil industry executives were already expecting it. “I doubt they will really be gradual,” he added.

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