Oil majors little hurt by U.K. windfall tax but energy transition plans at risk (NYSE:BP)

Analysts say the U.K.’s new 25% windfall tax on earnings from oil and fuel output will scarcely damage built-in vitality majors this sort of as BP (NYSE:BP) and Shell (NYSE:SHEL) but will whack more compact North Sea producers that generate all of their earnings in the U.K.

Harbour Electricity (OTCPK:PMOIF), EnQuest (OTCPK:ENQUF) and Serica Power (OTCPK:SQZZF) all fell far more than 10% in London trading given that Thursday, when the majors ended up small improved.

BP is the most uncovered by means of its oil and fuel projects in the U.K. North Sea, but the fields account for just 7% of BP’s manufacturing and 4.3% of complete revenue, RBC’s Biraj Borkhataria estimates, and the percentages are even reduce for Shell (SHEL), TotalEnergies (TTE) and Eni (E).

The tax raise, prior to any financial commitment allowances, is equal to 2.8% of 2022-24 cash flows for BP (BP), 2.4% for Total (TTE) and 1.2% for Shell (SHEL), HSBC analysts say, and “the detrimental influence of the new levy could nicely be offset to a excellent extent by capital allowances.”

BP (BP) mentioned it will have to have to analyze the impact of the new levy and the tax reduction on its investment programs for the North Sea, noting that the tax is not the a single-off measure it experienced predicted.

Shell (SHEL) reported the levy generates uncertainty about the North Sea investment decision local climate for the coming a long time and fails to help the government’s renewable electrical power ambitions.

Inspite of the warning, some analysts believe that the tax plan could encourage developers to fast-track somewhat highly developed assignments this sort of as Equinor’s (EQNR) Rosebank and Shell’s Cambo in get to avoid taxes.

If North Sea organizations do not spend by the stop of 2025 – the yr the levy is scheduled to be removed – they would shell out appreciably extra to the Treasury, according to Wood Mackenzie.

The tax marks a sudden U-flip for Primary Minister Boris Johnson, who experienced criticized the idea of “clobbering the firms that we want to make investments in our domestic electrical power.”