BP's Operating Profit Soars Despite Russia Exit... 'Windfall Tax' Controversy Heats Up

Q1 Russia and Foreign Exchange Transactions See $25.5 Billion Asset Write-Down... Operating Profit Highest Since 2008

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Park Byung-hee] Despite large-scale asset write-downs due to its withdrawal from Russian operations, British energy company BP posted its highest operating profit since the 2008 global financial crisis in the first quarter of this year. Although the withdrawal from Russia led to significant book losses, the sharp rise in oil prices greatly increased actual profits. In political circles, there are calls to impose a so-called "windfall tax" on BP, which has benefited from rising oil prices, to help households and businesses struggling with the surge in oil prices. However, UK Prime Minister Boris Johnson has expressed his opposition to this.

According to major foreign media on the 3rd (local time), BP announced that it recorded a net loss of $20.4 billion in the first quarter of this year. However, this included a $25.5 billion asset write-down related to the withdrawal from Russian operations, and excluding one-off items such as write-downs, the first-quarter operating profit was $6.2 billion.

The first-quarter operating profit more than doubled from $2.63 billion in the first quarter of last year, marking the highest since the 2008 global financial crisis.

Regarding the $25.5 billion asset write-down in the first quarter, BP stated that $14.5 billion was due to the withdrawal from Russian operations, and $11.1 billion was related to asset write-downs from foreign exchange transactions. BP announced that shortly after Russia's invasion of Ukraine, it would sell its 19.75% stake in Russian oil company Rosneft. It also gave up stakes in two Russia-related joint ventures.

The scale of the first-quarter net loss was smaller than BP's initial estimate of $25 billion. The first-quarter operating profit far exceeded the market expectation of $4.49 billion.

As BP posted large operating profits, political controversy over the windfall tax is expected to intensify.

Keir Starmer, leader of the opposition Labour Party, said BP's net profit demonstrates the need to introduce a windfall tax.

However, UK Prime Minister Boris Johnson expressed opposition to the introduction of a windfall tax on the same day. This stance differs from that of Chancellor Rishi Sunak, who said last week that the introduction of a windfall tax was under consideration. Johnson argued that if a windfall tax is introduced, oil and gas companies might abandon investments in the North Sea.

Former Labour Party leader Ed Miliband pointed out that the government is refusing to take action to address climate change.

BP CEO Bernard Looney said, "We understand that many households are facing great difficulties," adding, "BP's role is to return cash to shareholders, including pensioners, pay taxes, and invest in the UK energy sector."

BP announced that the amount of taxes it will pay to the UK government this year will reach ?1 billion. BP paid ?283 million in taxes in 2020.

BP also announced that it will expand its share buyback program again after two months. When oil prices were around $60 per barrel, BP set its quarterly share buyback at $1 billion. However, in February, it announced an increase to $1.5 billion, and now it has announced a further increase to $2.5 billion.

BP also pledged to invest ?18 billion in the UK energy sector by the end of 2030. BP stated that its withdrawal from Russian operations will not affect its plans to transition from fossil fuels to eco-friendly energy.

BP reported that it reduced its net debt from $30.6 billion at the end of last year to $27.5 billion.

Meanwhile, the Italian government has introduced a windfall tax. On the 2nd, the Italian government approved a €14 billion stimulus package to support households and businesses struggling with rising energy costs, significantly raising the tax rate on energy company profits from 10% to 25%.

This content was produced with the assistance of AI translation services.