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Felicity Bradstock

Felicity Bradstock

Felicity Bradstock is a freelance writer specialising in Energy and Finance. She has a Master’s in International Development from the University of Birmingham, UK.

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Oil Major Profits Spark Renewed Calls For A Windfall Tax

  • On the back of another impressive quarter for oil majors, critics are calling on governments to introduce measures such as a windfall tax to ease inflation and high energy costs.
  • These calls have been particularly vocal in the UK, with Global Justice Now describing BP’s most recent profits as heinous.
  • This week, the Labour Party in the UK called for the windfall tax to be made tougher, a sentiment that may begin to grow elsewhere if these mega-profits continue.
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With oil majors all reporting impressive profits this week, critics are once again questioning how governments will respond to huge oil and gas earnings in the face of rising inflation and economic instability. The high consumer energy costs still being seen don’t match up with the profits achieved by energy firms, thanks to high oil and gas prices, with a growing number of observers asking governments for subsidies to be financed by a windfall tax on oil and gas firms. While the U.K. has followed this path, other countries – such as the U.S., have so far resisted.

At the beginning of the month, British oil major BP reported stronger-than-expected first-quarter profits, of $4.96 billion. This marks an increase on the previous three months, although it still falls below the initial 2022 boom following the Russian invasion of Ukraine. In the fourth quarter of 2022 BP achieved a profit of $4.8 billion, while a record $6.2 billion profit was seen in the first quarter of 2022. BP far exceeded its Q1 expectations this year of around $4.3 billion. 

BP’s CEO Bernard Looney said that its high earnings were thanks to strong oil and gas trading. Looney stated, “This has been a quarter of strong performance and strategic delivery as we continue to focus on safe and reliable operations.” He added, “And importantly we continue to deliver for shareholders, through disciplined investment, lowering net debt and growing distributions.”

Despite the recent profits, BP’s shares fell by around 6 percent after the announcement, due to the company’s slowing buyback program. BP reported the completion of its previous share buyback program of $2.75 billion on 28th April and stated it was planning another share buyback of $1.75 billion. BP expects to offer share buybacks of around $4 billion annually. Meanwhile, its debt has fallen from $27.5 billion in early 2022 to $21.2 billion today. This follows BP’s announcement of record profits last year, of $27.7 billion, more than double its 2021 profits. 

And BP isn’t the only oil major to achieve record profits over the last year. The West’s five biggest oil companies achieved total profits of almost $200 billion in 2022. TotalEnergies recorded profits of $36.2 billion, doubling last year’s total, while Exxon Mobil achieved profits of $56 billion, and both Chevron and Shell also saw huge profits last year. Much of this money was used to provide shareholders with higher dividends and share buybacks. And not everyone is happy about the way these funds are being distributed. 

President Biden stated “You may have noticed that Big Oil just reported record profits… Last year, they made $200 billion in the midst of a global energy crisis. It’s outrageous.” He suggested that “too little of that profit” was being used to increase domestic production and drive down gas prices for consumers. Biden added, “Instead, they used those record profits to buy back their own stock, rewarding their CEOs and shareholders.” The U.S. president has repeatedly threatened action, such as a windfall tax, on companies that do not use these profits to support energy security and help struggling consumers, but no such tax has been introduced to date. 

In the U.K., BPs profits are being labeled as heinous, with many calling for a higher windfall tax to support consumers. The general secretary of the country’s Trades Union Congress, Paul Nowak, believes oil and gas companies are treating the British public “like cash machines”. Nowak stated, “These eye-watering profits are an insult to working families as millions struggle with sky-high bills. The government has left billions on the table by refusing to impose a proper windfall tax on the likes of BP. And even now ministers are refusing to take action to fix our broken energy market and stop this obscene price gouging… We could have lower household bills and an energy system that served the public, if government taxed excessive profits, introduced a social tariff and created public ownership of new clean power.”

This sentiment is being echoed by the U.K. Labour Party, which, this week, called for a tougher windfall tax on the $75 million a day profits being seen in the North Sea. The political party believes higher taxes on energy companies could help to fund a freeze on council tax for poorer households. Prime Minister Rishi Sunak introduced a 25 percent energy profits levy, known as a windfall tax, which was expected to run until the end of 2025. And in January, this tax was increased to 35 percent and will run until March 2028. However, the tax only applies to profits from oil and gas extraction, not other activities in the North Sea, which Labour says means it is not extensive enough. 

Another year of major projected profits for oil and gas firms is creating frustration across an already strained public facing high energy bills and rising inflation. Although some countries, such as the U.K., have introduced a windfall tax, energy firms operating in many other countries have seen no limitations put on their record profits, leading them to reward stakeholders rather than help consumers. But if oil and gas firms continue to see sky-high profits while consumers struggle, the likelihood will increase that windfall taxes and other limits are introduced elsewhere. 

By Felicity Bradstock for Oilprice.com

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