Revealed: ExxonMobil, Shell and BP among oil companies paying negative tax in UK on some North Sea operations
Some of the world’s biggest oil companies are currently paying negative tax on their fossil fuel extraction and production operations in the North Sea.
Official data published by the UK government-backed Extractive Industries Transparency Initiative shows that in the tax year 2019-20, ExxonMobil received £117m in total from HMRC, Shell got £110m, and BP received £39m.
But these organisations are not alone.
Shell got £110m from HMRC in the 2019 to 2020 tax year
A third of all significant energy companies operating in the North Sea paid negative tax last year.
This is possible in large part because of a UK tax policy that was brought in just a few months after the Paris climate accord was agreed in 2015.
The policy allows oil and gas companies to claim back public money in order to help with decommissioning rigs and infrastructure as the UK progresses towards its net zero carbon emissions targets.
Since the Paris agreement, Exxon has received net tax repayments of £360m on its North Sea operations, BP £490m, and Shell £400m, rounded to the nearest 10 million.
Some of these sums relate to corporate tax arrangements, but significant portions relate to money for decommissioning.
The UK government’s Oil and Gas Authority has estimated that the total bill for decommissioning will be £51bn.
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But because of the government’s tax policy, the British taxpayer will be responsible for nearly 40% of that over the coming decades.
HMRC has estimated that the cost to the exchequer will be £18.3bn between now and 2065.
This comes as total government income from taxes on oil revenue is decreasing, largely due to falling demand and the cost of decommissioning payments.
Energy Research company Rystad Energy recently named the UK as the country that offers oil and gas companies the “best profit conditions” in the world “to develop big offshore fields.”
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This has been illustrated by researchers like Greg Muttitt, who is a senior policy adviser at the International Institute for Sustainable Development.
He has calculated that in 2019 the UK government took $1.72 (£1.24) in taxes per barrel of oil, while the Norwegian government took $21.35 (£15.44).
Campaign groups say the current tax policy effectively amounts to the British public subsidising fossil fuel extraction, even as they are being urged to make greener choices in their own lives.
ExxonMobil received £117m from HMRC in the 2019 to 2020 tax year. Pic: AP
Environmental lawyer and campaign group Uplift founder Tessa Khan told Sky News: “These companies are allowed to extract oil and gas for private gain, not the public’s benefit and certainly not the Treasury’s.
“They’re not helping to pay for our hospitals and schools, they’re taking public money and handing it to their executives and shareholders.
“The harm to the climate from their actions will be borne by us all, with the poorest hit the hardest.
“There can be no excuses for propping them up with subsidies in a climate emergency. That era is over.”
A section of the BP Eastern Trough Area Project oil platform seen in the North Sea in 2014. File pic
A Treasury spokesperson told Sky News: “We’re leading the world in building back better and greener from the pandemic.
“We were the first major economy to commit to net zero by 2050 and one of the first to phase out petrol and diesel car sales by 2030.
“The UK oil and gas industry has paid around £375bn in production taxes to date.
“Relief for decommissioning costs is a fundamental part of the UK’s tax system, contributing to the safe removal of oil and gas infrastructure from our natural environment whilst ensuring companies are encouraged to invest in the UK.”
A spokesperson from ExxonMobil said: “The figures in the UK EITI report relate only to extractive operations (oil & gas production), several of which are nearing the end of their economic life.
“ExxonMobil also has downstream and chemical operations in the UK, and overall made a contribution to the UK of £5.2bn in direct and indirect taxes and duties in 2020.
“Over the lifetime of the North Sea, we have been a major, net contributor to the tax revenues generated by the basin and the recent refunds simply represent a repayment of some prior paid taxes as some of our older fields enter the decommissioning phase of their life.”
A spokesperson from Shell told Sky News: “We are open about our tax payments so that people can understand what we pay and why.
“We voluntarily disclose more information than we are required to and lead best practice in this area.
“The question you raise is whether it is right that companies get tax relief for decommissioning assets.
“Decommissioning is part of the lifecycle of oil fields.
“This phase of work is heavily regulated and subject to tax legislation that enables tax relief.
“The concept of granting tax relief for genuine business expenses is fundamental to regimes that tax profits and is applicable and available to all businesses in all industries with few exceptions.
“Decommissioning costs in the oil and gas industry are treated consistently as a business expense.”
A spokesperson for BP told Sky News: “The EITI’s data cover only the extractive part of our business in the UK, our North Sea business.
“All BP’s North Sea assets are owned by companies subject to UK tax in accordance with UK law.
“BP has contributed over £40bn in taxes to the UK government with respect to its North Sea business.”
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Sky News has launched the first daily prime time news show dedicated to climate change.
The Daily Climate Show is broadcast at 6.30pm and 9.30pm Monday to Friday on Sky News, the Sky News website and app, on YouTube and Twitter.
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The show also highlights solutions to the crisis and how small changes can make a big difference.
One of the world’s largest investment firms has waded into the fight over the future of Thames Water, the water utility which is racing to stay afloat.
Sky News has learnt that KKR is in talks with Thames Water and its advisers about participating in a £3bn share sale which forms part of a wider recapitalisation plan.
City sources said this weekend that KKR, which has more than $550bn of assets under management, was among a handful of parties which had accessed a data room for potential investors.
Rothschild, the investment bank, is running a process to raise around £3bn from the sale of an equity stake in Thames Water, which is grappling with a debt mountain of as much as £19bn.
Other investors which have expressed interest in acquiring newly issued shares in the water company include Carlyle and Castle Water, the latter of which is controlled by Graham Edwards, the Conservative Party treasurer.
Global Infrastructure Partners, which is owned by BlackRock, Brookfield and Isquared are also reported to have lodged an interest, although sources said that the latter two were unlikely to play any further role in the process.
The crisis at Thames Water is presenting Sir Keir Starmer’s administration with a challenge as the debt-laden company attempts to avert temporary nationalisation.
Insiders said that KKR was “a serious player” in the equity process being run by Thames Water, although its outcome hinges on a final determination by Ofwat, the industry regulator, which is due by January at the latest.
Thames Water – and other suppliers across Britain – wants to hike bills and is demanding leniency from Ofwat on fines for past transgressions.
One obstacle to KKR buying a big stake in Thames Water, which has more than 15m customers, may be its 25% holding in Northumbrian Water.
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Under Ofwat’s mergers regime, the Competition and Markets Authority would need to review the deal, although there would not be an automatic prohibition.
The share sale process is being run in parallel to an attempt to raise up to £3bn in debt financing from hedge funds and other investors.
A battle has broken out between the holders of Thames Water’s class A bonds, which account for the bulk of its borrowings, and its riskier class B debt.
Both sets of bondholders have submitted proposals to the company, with the class A’s arguing that theirs is more certain and the class B’s arguing that theirs will save the company £380m or more in fees and interest over a 12-month period.
Thames Water has already endorsed the class A group’s offer, with an initial £1.5bn of funding to be delivered immediately.
The class A bondholders are now trying to secure backing for their proposal within the next fortnight.
Their group, which includes the American hedge funds Elliott Advisers and Silverpoint, would earn in the region of £650m during the first year of the financing.
One area of controversy is likely to be any incentive plan for Thames Water bosses, led by chief executive Chris Weston, as part of a deal to give the company a stay of execution.
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Last month, the environment secretary, Steve Reed, established an independent review of the industry that will look at far-reaching reforms.
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It was unclear this weekend which of KKR’s funds was participating in the Thames Water equity-raise.
The firm owns John Laing, an infrastructure investor, which it took private in 2021.
It has also owned South Staffordshire, another water company, selling its 75% interest in 2018.
KKR declined to comment.
The business secretary will next week hold talks with dozens of private sector bosses as the government contends with a significant corporate backlash to Labour’s first fiscal event in nearly 15 years.
Sky News has learnt that executives have been invited to join a conference call on Monday with Jonathan Reynolds, in what will represent his first meaningful engagement with employers since Wednesday’s budget statement.
Rachel Reeves, the chancellor, unsettled financial markets with plans for billions of pounds in extra borrowing, and unnerved business leaders by saying she would raise an additional £25bn annually by hiking their national insurance contributions.
An increase in employer NICs had been trailed by officials in advance of the budget, but the lowering of the threshold to just £5,000 has triggered forecasts of a wave of redundancies and even insolvencies across labour-intensive industries.
Sectors such as retail and hospitality, which employ substantial numbers of part-time workers, have been particularly vocal in their condemnation of the move.
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On Friday, the Financial Times published comments made by the chief executive of Barclays in which he defended Ms Reeves.
“I think they’ve done an admirable job of balancing spending, borrowing and taxation in order to drive the fundamental objective of growth,” CS Venkatakrishnan said.
His was a rare voice among prominent business figures in backing the chancellor, however, with many questioning whether the government had a meaningful plan to grow the economy.
Mr Reynolds held a similar call with business leaders within days of general election victory, and over 100 bosses are understood to have been invited to Monday’s discussion.
A spokesman for the Department for Business and Trade declined to comment ahead of Monday’s call.
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