Calls for ‘loophole’ to be closed as BP bags £500m of profits beyond expectations

BP announced that it made just under $5bn ($4.96bn; £4bn) in underlying replacement cost profit between January and March of this year, citing a strong performance in its oil trading business.

The profit is actually a reduction from last year's gargantuan take, when BP's business benefitted from extremely high energy prices, but other than that exceptional period today's profit is the best result BP has reported in more than a decade.

Last year, BP made $6.2bn (£4.96bn) of profit in the same quarter. The drop this year is largely down to BP getting less money for the oil and gas it sold, although this was partly offset by an exceptional performance from its gas marketing division.

Today's figure is also around $700m (£560m) more than the $4.3bn (£3.44bn) which analysts who follow the oil giant thought it would make.

“These enormous profits are the unearned, unexpected windfalls of war,” said Labour shadow energy secretary Ed Miliband.

BP boss Bernard Looney said: “This has been a quarter of strong performance and strategic delivery as we continue to focus on safe and reliable operations.”

The huge profit has sparked renewed calls for the government to ensure oil companies are hit with what Labour leader Sir Keir Starmer called a “proper” windfall tax.

“It shows that these really huge profits are continuing. This isn’t the first, but £4bn… that’s a huge amount of money,” Sir Keir told BBC Breakfast.

“It’s always worth bearing in mind that of course we want BP and others to make profits so they can invest, but these are profits they didn’t expect to make. These are profits over and above because the world price of energy is so high.”

Sir Keir said Labour wants to use an “effective” windfall tax to freeze council tax so money is passed on to people.

“This is a cost-of-living crisis. It’s about choices. Labour is choosing to use those excess profits, use a proper windfall tax and use that directly to help people with the bills that they’re struggling with,” he said.

Sir Keir said the incumbent government’s windfall tax has a loophole that allows oil and gas companies to reduce the amount they pay if they invest in new oil and gas exploration in the UK.

“They’ve put a loophole in for that which means that the amount of money that is yielded from that tax is much reduced from what it could be,” he said.

The government’s energy profits levy charges means companies are charged 75 per cent on the profits they make in the North Sea. However, for every pound they invest in their UK oil and gas business, companies can write down their tax liability by 91p.

The government has claimed that this will encourage investment in the UK and protect the country’s energy security.

Liberal Democrat leader Ed Davey said: “These eye-watering profits are a kick in the teeth for all those struggling to pay their energy bills.

“The Conservative government has let oil and gas giants off the hook for billions of pounds while people and businesses struggle to pay for their gas and electricity.

“It shows just how out of touch they are; these Conservatives may as well be living on another planet. Ministers must finally put in place a proper windfall tax and use the money raised to cut people’s energy bills by £500.”

BP said it expects oil prices to remain high after a recent decision by Opec+, a group of oil-producing countries, to restrict production in order to keep prices up. Demand from China will also serve to put upwards pressure on the cost of oil and liquid natural gas.

BP said it will return another $1.75bn (£1.4bn) to shareholders by buying back shares.

Somewhat surprisingly, the company’s shares fell by 4.6 per cent this morning (Tuesday), making it the second-worst-performing company on the FTSE 100.

Victoria Scholar, head of investment at Interactive Investor, said the drop happened as BP said it will only buy back $4bn of shares per year, at the lower end of its range.

Earlier this year, BP was criticised for backing down on its own climate pledges, despite enjoying bumper profits. The fossil fuel firm slashed its emissions reduction targets by a third.

In September 2022, Greenpeace accused BP of failing to report massive flaring emissions from one of its projects in Iraq – equivalent to the annual emissions of over 970,000 petrol cars.

BP jointly owns the Rumaila operating company, but Unearthed – the environmental charity’s investigatory arm – said the firm denies responsibility for its emissions.

Ironically, in autumn 2020, BP issued a report in which it stated that global oil demand has passed peak forever and that fossil fuels would be replaced by clean electricity. At that time, BP wrote that the fossil fuel industry faces an inevitable slow decline over the coming decades.