Oil and gas companies operating in the UK’s North Sea are expected to report “near record” income in 2021 and 2022 as the price of energy skyrockets.
Wood Mackenzie analysis says that UK oil and gas operators are projected to record around $17bn in cash flow for last year, and approximately $18bn this year.
Such amounts were last seen in the boom years before the 2008 financial crash.
Combined with the aggressive cost cutting measures during COVID, these cash flows are also predicted to lead to near record profits.
On Friday, Europe’s biggest oil and gas group Shell announced soaring profits in the fourth quarter of the year because of high gas prices.
And BP boss Bernard Looney recently described his company as a “cash machine” because of the increasing cost of energy.
The Wood Mackenzie analysis will add to the growing pressure on the government to announce a windfall tax on oil and gas companies and to use that money to help ease the burden on ordinary people.
Both the Labour party and the Liberal Democrats have called for this.
But an industry representative from Oil and Gas UK rejected the idea, arguing that ordinary tax payments will increase anyway and that a punitive windfall tax would potentially make it more difficult for the industry to invest in the transition to renewables.
Director of sustainability Mike Tholen said: “In doing so you (would) really disturb investments in the UK, make us less competitive, drive jobs, energy and security of supply out of the UK and that really is in no-one’s benefit.
“We acknowledge we will pay more tax, we want that to happen, and we want those monies to go where they’re most needed.
UK viewed as one of world’s most profitable countries for big oil and gas projects
“But by disturbing the investment cycle, we’re just suddenly going to make it more difficult to win investments in the UK, (and) provide secure gas supplies at a point where we desperately need them.”
Sky News has previously reported that oil and gas companies operating in the North Sea currently benefit from a favourable tax environment including large rebates for decommissioning rigs and generous capital expenditure allowances – changes that happened in 2014 under the then chancellor George Osborne.
As a result, many of the companies have paid negative tax in recent years, leading to the UK being viewed as one of the most profitable countries in the world for big oil and gas projects.
The Wood Mackenzie report predicts that although tax payments from North Sea operators will increase in line with income and profits, they will still be proportionately low compared to the years before 2014 – $3bn for 2021 and $7bn for 2022.
It also predicts that up to 12 new oil and gas projects could be sanctioned by the UK government this year alone, with operators judging the current beneficial conditions as a “now or never” moment.
‘Environmentally dangerous rush to wring the last profits out of North Sea fossil fuels’
Activists who successfully campaigned against the controversial Cambo oil field have warned that an environmentally dangerous rush to wring the last profits out of North Sea fossil fuels before renewables begin to completely dominate the market is incompatible with the UK’s net zero by 2050 targets.
Environmental lawyer Tessa Khan said: “You cannot reconcile the fact that the UK is the second largest oil and gas producer in Europe … and the fact that the government claims to be a climate leader and to have a net zero aspiration.
“I mean, oil and gas are responsible for a huge portion, together with coal, for more than 80% of carbon emissions.
“So there is no net zero future where we are continuing to encourage production of oil and gas, it’s as simple as that.”