BP’s best bet to avoid a windfall tax might be to hide Bernard Looney on an offshore oil rig for a few months. Every time the chief executive ventures into tax and investment territory, he ignites politics around the windfall debate.
Looney’s memorable remark last November – which he must regret – was the boast that BP was “a slot machine at these kinds of prices”. Oil prices at the time were $85 a barrel, so the extra $105 profits must have invited scrutiny when they stem, for the most part, from Russia’s war in Ukraine.
Then there was the admission a few weeks ago – repeated at Thursday’s shareholder meeting – that a windfall tax would not one iota alter BP’s plan to invest £18billion in United Kingdom for the rest of the decade. This line invited outsiders to wonder if BP could make more than £2bn a year on average. The UK’s need to invest in energy security has suddenly become more urgent, so it’s fair to wonder whether BP has raised its ambition too. If any element of the £18 billion represents a boost from previous plans, the company has not identified it.
In that context, another of Looney’s comments on Thursday read almost like an invitation to the government to have a standoff. “By definition windfall taxes are unpredictable and could jeopardize local energy investments,” he said. Does this mean that BP could invest more, but won’t if the government takes the windfall route? If this is the pitch, Rishi Sunak, a chancellor who says he is in “pragmatic” mode, is almost obliged to emerge with some victory from this small confrontation.
The oddity of the whole debate, as has been pointed out here more than once, is that it is not about huge sums. In the case of BP, a 40% to 50% increase in the North Sea profits tax rate this year would mean a payment of £250million on top of the £billion expected at the normal rate. For a group that is currently spending over £1bn to buy back shares, a quarter of a billion is no game changer.
Yes, any one-time levy can be called “unpredictable,” but hey, it’s not as if additional taxes under exceptionally favorable commercial terms are unknown. Other European countries are already doing this. As long as they only happen once a decade, the recent UK average, the local tax system will always seem stable. Looney’s air is unconvincing.
BT is finally focusing on the main event
Amid falling stock markets and unpegged ‘stable’ coins, BT offered port in a storm on Thursday: Shares rose slightly from full-year figures and the final dividend was restored to the level previously announced.
The group even eventually got fired from BT Sport, a company which, depending on your perspective, was either a vanity project by its former chief executive, Gavin Patterson, or a Sky jamming device needed to stem the loss of broadband customers in the mid-2010s.
Or rather, BT will be half out of the sport. Forming a joint venture with Warner Bros Discovery will see BT receive just £93m upfront. The real money – up to £540m – will have to come from top-up fees over four years if the milestones are met. In a profession highly dependent on the renewal of sports rights, particularly football, structuring was undoubtedly inevitable. Equally important, perhaps, was the signing of an extension to a reciprocal channeling agreement with Sky; it brings a little certainty.
BT’s main game these days is fiber fast, where today boss Philip Jansen says Openreach is building “like the fury”. In hard numbers, that means 7.2 million locals have been adopted, with another 3 million to follow this year and 4 million per year thereafter. Goldman Sachs analysts calculate the pace to be three or four times that of its peers, so the thesis that BT should eventually exit its £15bn spending program with two-thirds of the market in the fast fiber remains intact.
The number of customers who actually buy the inflated broadband connections is a key moving part of the mix. The take-up rate is currently at 25%, which BT says “compares well” with current early-stage European rollouts. The ratio will be one to watch over the coming quarters but, for now, BT looks set to become the telecom equivalent of a slightly more exciting National Grid. There’s no shame in that: it’s pretty much what BT should always have been. Football has always been a secondary spectacle.