Bumper Profits Are Sparking A Backlash Against Big Oil

Source: By Tsvetana Paraskova, Oilprice.com • Posted: Tuesday, February 15, 2022

Big oil has reported its highest earnings and cash flows in at least seven years, driving politicians and activists to call for the companies to pay more taxes.

International oil companies – many of which are reinventing themselves as energy firms in order to remain relevant during a global energy transition – now face growing pressure from climate campaigners and politicians to pay for their multi-year-high profits and cash flows with more taxes. 

The rallying oil and gas prices in 2021 helped Big Oil to post the biggest earnings and cash flows in at least seven years. But environmentalists and opposition politicians in the UK – home to BP and Shell and a key operations base for TotalEnergies – want the majors to pay to mitigate the current energy crisis in the UK, where soaring gas and electricity bills have already created a cost-of-living crisis and are set to jump by over 50 percent as of April 2022 for more than 20 million households.

The majors and the offshore energy industry body in the UK reject calls for making oil firms pay more taxes, arguing that more tax would mean creating an unfavorable investment environment at a time when demand for oil and gas is rising, while overall investments in recent years have slumped.

All supermajors reported very strong earnings and cash flows for Q4 and 2021, as oil and gas prices rallied and global demand rebounded after the slump in the pandemic in 2020. 

Exxon posted its largest quarterly profit for Q4 in seven years, while its full-year 2021 cash flow from operating activities jumped to the highest since 2012. Chevron reported for 2021 a record-high free cash flow and its best annual earnings since 2014. BP announced last week what was its highest annual net profit in eight years

“And certainly, it’s possible that we’re getting more cash than we know what to do with,” BP’s chief financial officer Murray Auchincloss said on the earnings call. 

The opposition Labour Party in the UK and Greenpeace have some ideas what BP and its peers could do with so much cash. And they hurried to propose them as early as in January when the soaring energy bills – with another major surge to come in April – started to hit the pockets of UK households. 

After BP and Shell reported their Q4 and 2021 earnings earlier this month, calls intensified for a so-called “windfall tax” on the profits of energy companies to be used to mitigate the blow to consumers.  

“These profits are a slap in the face to the millions of people dreading their next energy bill. BP and Shell are raking in billions from the gas price crisis while enjoying one of the most favorable tax regimes in the world for offshore drillers. And these are the same companies responsible for pushing our world closer to catastrophic climate change. This isn’t right,” Greenpeace UK’s head of climate Kate Blagojevic said

Rachel Reeves, Shadow Chancellor of the Exchequer and Labour MP for Leeds West, said that while BP announced their highest profits in 8 years, many people’s energy bills hit the roof and called for the government to back Labour’s plan for a one-off windfall tax on North Sea oil and gas producer profits. 

The conservative UK government has rejected the calls to introduce a windfall tax and to limit oil and gas production in the North Sea. Business and Energy Secretary Kwasi Kwarteng said last week that “Turning off North Sea oil and gas would put energy security, British jobs and new industries at risk – and we’d just end up importing more from abroad. This has to be a transition, not extinction.” 

Patrick Pouyanné, CEO at TotalEnergies, said, as quoted by AFP, more taxes to governments “would be at the expense of investments, workers or shareholders.”  

BP’s chief executive Bernard Looney noted that “if anything, the UK needs more gas, not less gas right now. And that’s going to require more investment, not less investment. And a windfall tax isn’t probably going to incentivize more investment.”

Following the first calls for windfall tax in early January, OEUK, the offshore energy industry body, said that “A one-off ‘windfall tax’ on the UK’s offshore oil and gas operators would cause irreparable damage to the industry and leave consumers even more exposed to global shortages.”

“In the longer-term a windfall tax would also be the worst thing for consumers because it would damage competitiveness, and discourage energy companies from investing in the UK,” Jenny Stanning, External Relations Director at the association, said.  

By Tsvetana Paraskova for Oilprice.com

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