Energy giant BP reported record annual profits after oil and gas prices spiked last year following Russia’s invasion of Ukraine.
The company’s profits have more than doubled to $27.7bn (£23bn) in 2022, from $12.8bn the previous year.
Other energy companies saw similar increases, with Shell announcing a record profit of nearly $40 billion last week.
The profits have led to calls for energy companies to pay more tax as many households grapple with rising bills.
BP boss Bernard Looney said the British company was “helping to deliver the energy the world needs” and was investing in the transition to green energy.
Energy prices had started to climb after the end of the Covid lockdowns, but rose sharply in March last year after Russia invaded Ukraine, raising concerns about supplies.
The price of Brent crude hit nearly $128 a barrel after the invasion, but has since fallen back to around $80. Gasoline prices also soared, but were down from their highs.
This has resulted in windfall profits for energy companies, but has also fueled rising household and business energy bills.
Last year, the UK government introduced a one-off levy – called the Energy Profits Levy – to help fund its program to cut gas and electricity bills.
Windfall tax only applies to profits derived from the extraction of oil and gas in the UK. The rate was initially set at 25%, but has now been increased to 35%.
Oil and gas companies also pay a 30% corporation tax on their profits as well as an additional 10% rate. Together with the new windfall tax, this brings their total tax rate to 75%.
However, companies are able to reduce the amount of tax they pay by taking into account losses or expenses for things like the dismantling of North Sea oil rigs.
“The Bargains of War”
BP said its UK business, which accounts for less than 10% of its global profits, will pay $2.2 billion in tax for 2022, including $700 million due to the Energy Profits Levy.
Andrew Griffith, Economic Secretary to the Treasury, said the windfall tax had struck the “right balance” between helping families with the cost of living and securing the UK’s energy supply.
“We’ve been very clear that we want to encourage the reinvestment of profits from the sector back into the economy and that’s why the energy profit tax works precisely the way it does,” he told Reuters. BBC Radio 4 Today programme.
Nick Butler, a former senior executive at BP and now a visiting professor at Kings College, who the BBC spoke to because of his knowledge of gas companies, said oil and gas prices would not remain ‘exceptionally high’ for all time.
“I’m sure there will be more pressure for windfall taxes and I understand that, but this is a temporary situation. Oil and gas prices go down and windfall profits that these companies realize won’t last until 2023.”
But Labour’s shadow climate secretary Ed Miliband has called on the government to raise the windfall tax.
“It’s yet another day of huge profits for an energy giant, the windfalls of war pouring out of the pockets of the British people,” he said.