England in 6 months raises windfall tax on oil companies from 25% to 35%

Nov 18, 2022 News

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– in Guyana oil companies are allowed to walk away tax-free

Kaieteur News – British Finance Minister, Jeremy Hunt on Thursday announced that the government is increasing the windfall tax on oil and gas operators from the current 25 percent which was announced in May of 2022 to 35 percent.

A windfall tax is a one-off tax imposed by a government on a company, specifically targeting those that benefit from something they were not responsible for.  In this instance, the ongoing Russia-Ukraine war have sent oil prices soaring and triggering a cost of living crisis in many countries, including Britain. Amid the war, oil and gas companies have been seeing record-shattering profits and as such, many governments have introduced a windfall tax on the big profits to alleviate the cost-of-living crisis and balance their economy. The British government move to further tax oil operators’ big profits comes at a time when American oil giant, ExxonMobil subsidiary and its associates are enjoying tax-free profits in Guyana.

On Thursday, the British Finance Minister said, “I have no objection to windfall taxes if they are genuinely about windfall profits caused by unexpected increases in energy crisis.” Hunt then disclosed that the energy profits levy will increase from 25 percent to 35 percent. He added that the increase will take effect from January 1, 2023 and last until March 2028.

The British Government move for increase windfall tax comes as British oil and gas giants, like Shell and BP, continue to book record profits this year. For the third-quarter of 2022, BP recorded US$8.2 billion for the three months through to the end of September – whereas Shell recorded US$9.45 billion for the same period.  Earlier this month, President of the United States of America, Joe Biden threatened to increase the tax on the oil majors ‘outrageous’ profits. Biden had said, “Give me a break, enough is enough, look I’m a Capitalist and I have said this before, I have no problem with corporations turning a fair profit and getting a return on their investment and innovation, but this is not remotely what’s happening. Oil companies’ recording profits today are not because they are doing something new or innovative, their profits are a windfall of war.”

Countries like Norway and Czech Republic are also clamping down on the energy giants and have signaled their intentions to raise US-billions through a windfall tax on oil and gas companies.  On the local front, Guyana has found itself in a conundrum where it is foregoing more than it earns. Exxon’s affiliate Esso Exploration and Production Guyana Ltd (EEPGL), is the operator of the country’s richest oil block (Stabroek Block) and continues to enjoy tax-free earnings owing to the Production Sharing Agreement (PSA) Guyana signed onto with the oil major.

According to the 2016 PSA, Guyana has agreed to, under the taxation provisions, to pay ExxonMobil’s share of Corporation and Income Tax. As such it would mean, that Guyana foregoes each year, billions of US dollars. On top of this, documentation to this effect is then provided to the US based company allowing it to not have to pay any taxes in its home country for its earnings overseas.

Guyana’s Stabroek Block is 6.6 million acres (26,800 square kilometers) and has approximately 11 billion proven barrels of oil. EEPGL holds 45 percent interest in the Block. Hess Guyana Exploration Ltd. holds 30 percent interest, and CNOOC Petroleum Guyana Limited holds 25 percent interest.

For the third-quarter of 2022, Exxon announced that its overall earnings was a record-shattering US$19.7 billion – whereas Hess reported that it earned a net income of US$515 million and CNOOC recording US$5.1 billion. In January 2022, Kaieteur News Publisher, Glenn Lall, approached the High Court to challenge the Government of Guyana’s (GOG) decision to grant massive tax waivers to the oil companies and their affiliates. Earlier this month, Lall’s lawyer filed final submissions in the case and oral arguments into the case will be conducted on December 12, 2022 and February 22, 2023 was set for the ruling.  The KN’s publisher’s court case seeks to overturn the expansive tax provisions granted to the oil companies as part of the PSA for oil drilling exploration in the Stabroek Block. Among the grounds, Lall argues that Articles 15.4 and 15.5 of the petroleum agreement requiring the Minister responsible for Petroleum to pay taxes for and on behalf of the ERPGL, and the Commissioner General to issue certificates to that effect is therefore a violation of the Petroleum Act.

President Irfaan Ali was recently reported in the media stating that Exxon will not be subjected to the new terms his administration announced for future oil blocks, nor will Guyana be implementing a windfall tax on the oil companies.

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