Calls for higher windfall tax intensify as oil giant BP posts huge profits

As UK consumers face the prospect of support for household fuel bills being cut off from next spring, instead of the two years pledged by the Truss administration in September, BP continued to reap the benefits of the surge in commodity prices that has followed Russia’s war on Ukraine.

The energy giant yesterday unveiled profits of $8.2 billion (£7.1bn) on the company’s preferred replacement cost measure for the third quarter, which compared with $3.2bn at the same stage last year and $8.5bn in quarter two.

The third-quarter results took BP's profits to $22.8bn for the first nine months of the year, with the company pledging to use $3.5bn of the surplus cash it generated in the third quarter to return $2.5bn to investors through a share buyback. That would take total buybacks from surplus cash this year to $8.5bn.

BP said its underlying effective tax rate (ETR) on North Sea profits increased in the third quarter and for the first nine months, following the introduction of the UK Energy Profits Levy in May. It said the underlying ETR for the third quarter and nine months of this year were 37% and 33%, compared with 35% and 31% for the same periods one year ago, with the higher rate down to the energy profits levy, as well as the absence of earnings from its stake in Rosneft, the Russian energy giant.

But the lower ETR was not enough to prevent further calls for the UK Government to hike the windfall tax, amid expectations that a fresh wave of austerity to bolster the public finances is imminent.

Sharon Graham, general secretary of trade union Unite, said: “Workers and communities face financial calamity this winter while energy giants like BP are making billions in unfettered profits. It’s clear our economy is broken.

“Unite’s independent profiteering report has established that it is corporate greed and profiteering which is driving inflation not workers’ wages. It’s time to stop tinkering at the edges. The Labour movement must seize the moment, take control of the debate, and make the undeniable call to bring the energy giants into public ownership.”

The UK Government introduced the Energy Profits Levy in May after coming under pressure to curb the extraordinary profits being made by energy giants on account of soaring oil and gas prices, driven by the Russian assault on Ukraine.

The levy introduced a 25% surcharge on extraordinary profits, which the Government said would raise around £5bn over the subsequent year, however oil and gas companies were simultaneously handed generous tax reliefs to encourage them to continue to invest in UK oil and gas extraction projects.

Pressure to increase the windfall tax has since grown as oil and gas companies have announced hefty profits and huge returns to shareholders, driven by elevated commodity prices as the year has progressed. Last week Shell reported third-quarter profits of $9.4bn and an additional $4bn of share buybacks, which came shortly after outgoing chief executive Ben van Beurden was quoted as saying governments may need to tax energy companies to protect the “poorest” consumers from rising bills.

BP said its third-quarter profits had dropped compared with the second quarter because of weaker refining margins, an average oil trading result, and lower liquids realisations, which it noted was partly offset by an exceptional gas marketing and trading result, and higher gas realisations.

BP chief executive Bernard Looney said the company’s results for the third quarter “reflect us continuing to perform while transforming” into a lower carbon business.

Mr Looney said: “We remain focused on helping to solve the energy trilemma – secure, affordable, and lower carbon energy. We are providing the oil and gas the world needs today – while at the same time investing to accelerate the energy transition. Our agreement on [buying] Archea Energy (US biogas company) is the most recent step in our strategic transformation of BP.”

The Scottish Greens called for a “proper and meaningful windfall tax that can be reinvested in the green technology that is so badly needed. “

Mark Ruskell MSP, the party’s energy and environment spokesperson, said: “That would help to accelerate our pathway towards a just transition to renewables. “

Stuart Lamont, investment manager at RBC Brewin Dolphin, said: “BP’s results follow another strong set of numbers from Shell last week, with $8.2bn in replacement cost profit for the quarter – the company’s preferred measure of performance. Debt has fallen for the 10th consecutive quarter, cash generation remains solid, and BP intends to initiate another share buyback programme backed by a strong balance sheet. Such robust results will only intensify the discussion around windfall taxes for oil and gas companies, as many households struggle with the cost of living.”

BP shares closed up 6.65p, or 1.39%, at 486.45p.