Prime Minister Boris Johnson has demanded a "clear plan" on how energy companies plan to reinvest North Sea profits into the UK amid a cabinet split over proposals for a windfall tax.
Chancellor Rishi Sunak surprised the offshore sector last week by suggesting in an interview that oil and gas providers could face an additional tax on their profits, despite previously ruling it out.
However, Business Secretary Kwasi Kwarteng criticised the idea, telling Sky’s Sophy Ridge on Sunday: “I’ve never been a supporter of windfall taxes, I’ve been very clear about that publicly. I think they discourage investment.”
However, where the three men are aligned is on the fact that they want to see concrete proposals from the industry on how profits will be invested to help support both energy security and energy transition, as BP and Shell prepare to unveil their Q1 results this week.
Mr Johnson tweeted yesterday that his government was supporting the oil & gas sector, but added: "we want a clear plan from industry to reinvest profits in the North Sea and clean technology".
In a joint letter to bosses, Mr Johnson and Mr Kwarteng said government and industry need to "collectively show the British people how the success of our offshore oil and gas sector has a direct and enduring benefit to the British economy".
The letter, penned by Mr Kwarteng, states: "As the Prime Minister and I set out in the Energy Security Strategy, domestic production is now more important than ever, recognising that there will be an ongoing demand for oil and gas over the coming decades as we smooth the transition to cheap, clean, home-grown energy.
"That is why we took steps to remove obstacles to accelerate production and confirmed that the North Sea Transition Authority plans to launch another North Sea licensing round in the autumn, taking into account the forthcoming climate compatibility checkpoint and the need for domestic energy security.
"I want to also be clear that we will not bend to the will of activists who naively want us to extinguish production in the UK Continental Shelf – doing so would put energy security and British jobs at risk, and simply increases foreign imports, whilst not reducing demand. Scaling up, accelerating and investing in home-grown energy production will support us in continuing to grow the British economy, create good jobs across the country, and crucially bring down consumer bills in the long-term.
"In return for the UK Government’s ongoing support for the sector, the Prime Minister, the Chancellor and I want to see a very clear plan from the oil and gas industry to reinvest profits in the North Sea and, importantly, in the clean energy technologies of the future.
"At our next meeting in coming weeks, I would like you to set out how you will reinvest profits, double down on investments in the clean energy transition and importantly accelerate and maximise domestic oil and gas production.
"We need to collectively show the British people how the success of our offshore oil and gas sector has a direct and enduring benefit to the British economy and people’s jobs and livelihoods in order to protect the North Sea as a major UK energy asset for decades to come."
Labour and the Lib Dems are both demanding a windfall tax on energy companies to help families struggling with the cost of living crisis.
Labour has estimated this would raise £1.2billion over the year ahead to provide targeted support to households and businesses.
However, research published by Aberdeen & Grampian Chamber of Commerce last week revealed that the Treasury has already banked £1.5billion more in the first three months of 2022 than it did over the same period in 2021.
Leading energy tax experts have suggested that tax revenues from the North Sea could now top £10billion in the year ahead, without a windfall tax.