BP to Sell Its North Sea Oil and Gas Assets

BP is selling off its offshore oil and gas assets in the North Sea due to punitive UK taxes. BP pays an effective 78% tax rate on profits from oil and natural gas production in the North Sea, among the highest worldwide. In comparison, U.S. oil companies generally pay combined federal, state, and local corporate tax rates of about 25% to 30% on U.S. profits. As a result, they have substantially more capital to reinvest in new energy. Andy Burnham, the UK’s new prime minister, in his first days in office, pledged to tackle the nation’s cost-of-living crisis, including high energy costs. Industrial energy in Britain is four times more expensive than in the United States and is twice as expensive as in France, “despite” all the wind turbines that the UK operates. Burnham told President Trump that he will adopt a more pragmatic approach to North Sea drilling than his predecessor, Keir Starmer.

Scottish First Minister John Swinney called on UK Prime Minister Andy Burnham to scrap the country’s windfall profits tax – known as the Energy Profit Levy (EPL) – saying, “It is crystal clear that the UK Government’s destructive tax regime is harming investment and jobs in Scotland – and the new Prime Minister must look at this issue as a matter of urgency.” UK’s “windfall” tax was first launched by Boris Johnson’s Conservatives at a rate of 25% in 2022. The Tories increased it significantly, and then Labor raised it still higher and extended it until 2030 at a rate of 38%. At the time, the government described the levy as:  “Money raised from these measures will support the transition to clean energy, improving energy security and independence, while providing sustainable jobs for the future and helping protect energy bills against future price shocks.”

BP pioneered North Sea exploration by conducting seismic surveys in 1963 to search for oil and gas resources and obtained one of the earliest leases auctioned by the British government in 1964, marking the birth of the British offshore oil and gas industry and leading to major gas and oil discoveries over the next decade. In 1965, it hit its first offshore well, leading to the discovery of the West Sole gas field. In 1970, BP made its largest discovery to date in the UK North Sea, the giant Forties field, a multi-billion-barrel oilfield, 160 kilometers (99 miles) from the nearest shore. BP operates five major production hubs in the region, including the Clair oilfield, the largest on the UK continental shelf. Over time, production has declined, and taxes have increased as the U.K. government has pursued net-zero and other climate policies.

The North Sea accounted for 5% of BP’s oil and gas production last year–around 117,000 barrels out of a total of ​2.3 million barrels of oil equivalent per day. Rystad Energy estimates BP’s UK upstream portfolio to be worth ⁠about $2.6 billion on a risked basis, with the most likely bidders including current North Sea producers. Others said the portfolio might fetch around $2 billion because of decommissioning liabilities.

In 2020, BP announced it wanted to be a net-zero company by 2050 or sooner and would help the world get to net zero. The company bowed to political pressure from politicians and activist investors who demanded it move away from oil and natural gas and become a green-energy company. That ambition led the company to shift away from its primary business model toward technologies that are “carbon-free.”  It allocated a significant share of its capital base to less-profitable wind, solar, carbon capture, and biofuels projects. That strategy cost BP billions of pounds in unnecessary spending and produced disappointing financial returns. Last year, BP management acknowledged the failure of that strategy, announcing a complete reversal and a renewed focus on its core business of oil and natural gas production. BP is selling off major portions of its renewable and low-carbon energy assets.

Other mistakes that BP has made over the past two decades include investment in Russian oil and gas and its costly Deepwater Horizon accident in the U.S. Gulf of Mexico. BP invested heavily in oil and natural gas assets in Russia and was forced to dispose of those assets at well below their market value when Russia invaded Ukraine. BP management failed to exercise adequate oversight of its offshore drilling operations in the Gulf of Mexico, leading to the Deepwater Horizon accident and ultimately costing the company more than $65 billion.

Conclusion

The UK’s tax rate is forcing BP to sell its North Sea oil and gas assets, valued at over $2 billion. BP pays an effective tax rate of 78% on profits from oil and natural gas production in the North Sea, compared with U.S. oil companies, which generally pay corporate tax rates of about 25% to 30% on U.S. profits. BP pioneered oil exploration in the North Sea in the early to mid-1960s and produces about 5% of its oil and gas from the North Sea today. Besides the punitive taxes from the UK government, BP management made mistakes, including moving into renewable and low-carbon energy technologies, investing in oil and gas assets in Russia, and mismanaging the Deepwater Horizon project, which resulted in a massive oil spill in the Gulf of Mexico.

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