“May you live in interesting times,” goes the saying, supposedly an English translation of an ancient Chinese curse.
For BP and Shell, the British companies that represent two of the world’s seven oil “supermajors”, the first quarter of 2022 has been painfully fascinating.
Both were heavily entangled in Russia and now have to write off a total of £24billion worth of their businesses, after cutting ties with the Kremlin.
Shell is set to take a £3.5bn hit due to its decision to exit its joint venture with Russian gas giant Gazprom, including its stake in the Sakhalin-2 gas project. BP accounts for the lion’s share of the eye-watering sum, due to its 20% stake in state oil company Rosneft.
It appears only yesterday that BP announced it was taking the stake, in return for Rosneft buying its Russian assets, as part of a new alliance unveiled at a conference at the salubrious London headquarters. of the oil company.
BP boss Bob Dudley, who himself fled Russia during a dispute with BP partners in a former joint venture there, announced the deal in 2013 alongside new friend Igor Sechin, then chairman of Rosneft.
Dudley is enjoying semi-retirement, while Sechin – nicknamed Darth Vader – sits to Putin’s right. The result, after talks between the government and BP, is a £20 billion divestment and hit. Rosneft made £1.9 billion in profits last year.
On the one hand, that’s a lot of money. On the other hand, it’s practically chicken feed for a company that absorbed £50billion in costs from its 2010 Deepwater Horizon oil spill and lived to tell the tale. Moreover, the loss could have been more painful if it were not for the fact that the oil companies behaved like bandits due to the exorbitant prices of oil and gas.
Bernard Looney, the chief executive of BP, described his business as a “cash machine” earlier this year, thanks to soaring commodity prices. BP’s annual profit, reported in February, was £10bn, down from a loss of £4.5bn the previous year. Shell got away with it the same way, reserving £14billion.
Their fortunes are widely expected to improve further in 2022, with first-quarter results due out this week offering the first glimpse of how much.
In February, oil and gas prices were high but had not yet been inflated by the war in Ukraine. What Putin took from British oil companies with one hand, in terms of painful disposals of Russian assets, he gave back with the other.
As a result, analysts have forecast £3.5bn for BP (up from £2.1bn last year) and £7bn for Shell, almost three times the £2.6bn of pounds sterling last year.
It’s no surprise, then, that the clamor continues for a windfall tax on North Sea oil producers, to fund rebates for struggling households struggling to pay record gas bills. .
While experts warned that households faced a choice between heating or eating, BP’s comment that it has “more money than we know what to do with” invites an obvious solution to both problems.
Labor supports such a policy, while the government has said it would be counterproductive and disincentive to invest to maximize dwindling North Sea production, just when we need the supply the most. interior.
However, last week Chancellor Rishi Sunak appeared to suggest the door might be ajar for such a tax. If oil companies fail to invest in improving these North Sea assets and bring them to full production, he could revisit a one-off tax, he said. On Friday, Business Secretary Kwasi Kwarteng called BP and Shell to issue the same warning about underinvestment.
But that sounds like an empty threat, not a new policy. It has the hallmarks of a political play intended to appease public anger at the oil industry that profits from the misery of bill payers and motorists.
Cash-rich drillers are already planning increased capital spending in the North Sea next year, along with low-carbon projects. Shell alone is expected to pump £25bn into UK businesses over five years. That might spur BP to be more ambitious, but luckily for Looney it can point to last week’s announcement of a joint venture with Volkswagen to roll out 8,000 electric vehicle charging stations across the UK and EU.
As it stands, no one in the oil game is behaving so stingily that they can expect to be hit with a punitive bill from the Chancellor.
The government’s demagoguery should give big oil companies very little to worry about – except for the ongoing headache of what to do with all that money.