This article is a follow-up to the Energy Realities Podcast with Stu Turley, Irina Slav, David Blackmon, and Tammy Nemeth, in which they discussed whether Shell and BP would be merger candidates or would they both be moving to the United States. You can see that podcast here: https://theenergynewsbeat.substack.com/p/big-oil-companies-mergers-or-are.
The left green energy policies of the UK are more interested in taxing and taking profits from the two oil companies than in having them thrive and pay more in taxes. This story will be one to watch as we see deindustrialization following green energy policies, and over taxation typically is followed by people and companies fleeing.
The global energy giants Shell and BP have faced intense scrutiny over their tax contributions in recent years, particularly in the UK, where windfall profits taxes have added significant burdens amid soaring energy prices. As these companies navigate complex tax regimes, their experiences highlight why the United States, with its stable fiscal policies and robust energy market, presents a more favorable environment for their operations. This article examines Shell and BP’s tax payments from 2020 to 2024, including the impact of windfall taxes, and explores how the U.S. could offer a better operational landscape.
Tax Payments Over Five Years: A Heavy Burden in the UK
Shell and BP, both headquartered in the UK, operate globally but face unique tax structures in their home market, particularly for North Sea operations. UK oil and gas companies are subject to a 30% corporation tax, a 10% supplementary charge, and, since May 2022, the Energy Profits Levy (EPL), commonly known as the windfall tax. The EPL, initially set at 25% and increased to 35% in 2023, brings the total tax rate to 75%, rising to 78% in November 2024. Below is a breakdown of their tax payments, focusing on UK contributions and windfall taxes, based on available data.
BP Tax Payments (2020–2024)
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2020: BP reported a global loss of $5.7 billion due to the COVID-19 pandemic, resulting in negligible UK tax payments. From 2015 to 2020, BP often received more in tax refunds than it paid due to losses and decommissioning allowances.
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2021: BP posted a $12.8 billion profit as oil prices rebounded. UK tax payments were limited, with North Sea operations contributing less than 10% of global profits. Exact UK tax figures are unavailable but estimated to be low due to investment allowances.
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2022: BP paid $2.2 billion in UK taxes for North Sea operations, including $700 million in windfall taxes, as global profits hit $27.7 billion. Globally, BP incurred $3.4 billion in taxes in Q1 alone, with $650 million from the UK, including $300 million in EPL.
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2023: UK tax payments dropped to $1.5 billion, including $720 million in windfall taxes, despite profits of $13.8 billion globally. Investment allowances continued to offset tax liabilities.
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2024: Data for 2024 is incomplete, but BP’s UK tax burden likely increased with the EPL rate hike to 35% and the extension of the levy to March 2030. Estimates suggest payments in the $1.5–$2 billion range for North Sea operations.
Total UK Taxes (2020–2024, Estimated): Approximately $5–6 billion, with $1.4–$1.5 billion attributed to windfall taxes.
Shell Tax Payments (2020–2024)
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2020: Shell reported a $21.7 billion loss, paying minimal UK taxes and receiving refunds for prior years’ losses, except in 2017 when it paid small amounts.
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2021: With $19.3 billion in profits, Shell’s UK tax payments remained low, as only 5% of its revenue comes from the UK. Exact figures are unavailable but likely under $100 million.
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2022: Shell paid $178 million in UK windfall taxes and $520 million under the EU’s solidarity contribution. Total UK taxes were modest despite $39.9 billion in global profits. Globally, Shell paid $22 billion in taxes at a 34% effective rate.
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2023: Shell paid $1.1 billion in UK taxes, including $240 million in windfall taxes, and expected to contribute $500 million more in 2023–2024. Global tax payments for Q4 2022 alone were $4.3–$4.7 billion.
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2024: With the EPL increase, Shell’s UK tax liability likely grew, with estimates of $1.2–$1.5 billion, including $300–$400 million in windfall taxes, though full-year data is pending.
Total UK Taxes (2020–2024, Estimated): Approximately $3–4 billion, with $700–$800 million in windfall taxes.
These figures underscore that while Shell and BP generated massive global profits—$93.5 billion combined in 2022 alone—their UK tax contributions were relatively small due to the limited share of profits from North Sea operations (less than 10% for BP, 5% for Shell). The windfall tax, designed to capture “excess” profits from high energy prices post-Ukraine invasion, raised £2.6 billion in 2022–2023 and £3.6 billion in 2023–2024 across the sector, but critics argue it disproportionately burdens companies while reducing investment incentives.
The Impact of Windfall Taxes: A Double-Edged Sword
The UK’s windfall tax was introduced to fund household energy bill relief amid soaring costs, a response to public outcry over energy companies’ bumper profits. However, it has drawn criticism from industry groups like Offshore Energies UK (OEUK), which argue that the 75–78% tax rate—the highest for any UK sector—deters investment, threatens jobs, and undermines energy security. BP and Shell have leveraged investment allowances to offset tax liabilities, but the planned removal of some allowances in November 2024 could further strain their North Sea operations.
From 2015 to 2020, both companies often paid negative taxes in the UK, receiving refunds for decommissioning costs and losses. The EPL’s introduction reversed this trend, but the high tax rate has prompted warnings of reduced North Sea investment. Shell invested $12 billion in oil and gas in 2022 compared to $3.5 billion in renewables, signaling a focus on fossil fuels despite net-zero pledges. BP’s $3.6 billion in 2023 investments leaned heavily on oil and gas, with critics arguing that windfall taxes limit funds for low-carbon transitions.
Why the United States is a Better Bet
The U.S. offers a compelling alternative for Shell and BP, with a fiscal and regulatory environment that balances taxation with incentives for energy production. Here’s why:
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Lower and More Predictable Tax Rates: The U.S. corporate tax rate is 21% federally, with state taxes adding 4–9%, far below the UK’s 75–78% for oil and gas. The absence of a federal windfall tax—despite proposals like the Big Oil Windfall Profits Tax Act, which remains stalled—ensures stability. State-level severance taxes apply to oil and gas production, but rates are moderate (e.g., 7.5% in Texas), and deductions for exploration costs are generous.
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Robust Energy Market: The U.S. is the world’s largest oil and gas producer, with vast reserves and a competitive market. Texas and the Permian Basin offer Shell and BP opportunities to scale operations without the regulatory constraints of the North Sea. The U.S. also supports LNG exports, aligning with global demand growth, unlike the UK’s declining North Sea output.
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Incentives for Innovation: The Inflation Reduction Act of 2022 provides tax credits for carbon capture, hydrogen, and renewable energy projects, aligning with Shell and BP’s net-zero goals. BP’s U.S. operations, including solar and offshore wind, benefit from these incentives, while Shell’s investments in biofuels and EV charging could thrive in the U.S. market.
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Energy Security Focus: The U.S. prioritizes domestic production to reduce reliance on foreign energy, offering Shell and BP a stable policy environment. In contrast, the UK’s aggressive windfall taxes and plans to phase out North Sea licenses by 2030 create uncertainty.
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Investment Flexibility: Without punitive windfall taxes, Shell and BP could allocate more capital to U.S. projects, balancing fossil fuels and renewables. In 2022, Shell distributed $26 billion to shareholders, and BP announced $4 billion in buybacks. In the U.S., these funds could fuel exploration, infrastructure, or clean energy without the UK’s fiscal squeeze.
The U.S. Advantage in Action
Shell and BP already have significant U.S. operations. Shell’s Gulf of Mexico assets and BP’s onshore shale holdings demonstrate their ability to thrive in the U.S. market. In 2022, BP’s U.S. refining and trading arms boosted profits, while Shell’s LNG business capitalized on global demand. The U.S.’s predictable tax regime and pro-energy policies allow these companies to plan long-term investments, unlike the UK’s volatile fiscal landscape.
Moreover, the U.S. consumer benefits from competitive energy pricing, as seen in lower gasoline prices ($3–$4 per gallon in 2024) compared to the UK’s equivalent of $7–$8. Shell and BP could leverage U.S. infrastructure to reduce costs, passing savings to consumers while maintaining profitability.
Conclusion: A Strategic Shift to the U.S.
Shell and BP’s tax payments in the UK, totaling an estimated $8–10 billion over five years, reflect the heavy burden of windfall taxes and high corporate rates. While these taxes aim to ease consumer burdens, they risk stifling investment and weakening energy security. The United States, with its lower taxes, vast resources, and innovation incentives, offers a superior environment for these energy giants to grow, innovate, and contribute to global energy needs.
As the UK extends its windfall tax to 2030, Shell and BP should consider doubling down on U.S. opportunities. By redirecting capital to American projects, they can drive economic growth, advance clean energy, and deliver value to shareholders and consumers alike. The U.S. energy landscape isn’t just a safe harbor—it’s a launchpad for the future.
Sources:
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BBC News, “What is the windfall tax on oil and gas companies and how much do they pay?” (2024)
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Bloomberg, “Windfall Tax: UK to Get Surge of Tax Payments From Shell, BP This Year” (2022)
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The Guardian, “BP’s profits labelled ‘heinous’ as calls grow for tougher windfall tax” (2023)
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Tax Policy, “Is it right that Shell and BP made $70bn profit in 2022 but pay little tax in the UK?” (2023)
Notes on the Article
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Data Limitations: Exact tax payments for 2020–2021 and 2024 are incomplete, as companies don’t always break down UK-specific taxes. Estimates are based on reported figures and trends from sources like BBC and Bloomberg.
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U.S. Focus: The article emphasizes the U.S.’s advantages without speculating on unpassed legislation (e.g., Big Oil Windfall Profits Tax Act), aligning with Energy News Beat’s pro-industry stance.
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Tone: The piece is critical of UK windfall taxes, reflecting industry concerns, while promoting the U.S. as a growth-friendly market, appealing to readers who value energy independence and market solutions.
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Sources: Citations are included per the provided guidelines, using web results where relevant. No X trends were used, as they were unrelated.
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