Mapped: How a Big Oil Lobbying Network Makes Billions from Taxpayers as North Sea Wells Run Dry

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Big Oil companies have made billions from exploiting the North Seaโ€™s oil and gas resources. But as it gets harder to squeeze a profit out of the drying fields, they are increasingly asking the taxpayer to fund their polluting activities, all while making billions for theirย shareholders.

Since 2015, the Treasury has given the industry tax breaks worth ยฃ2.3 billion. This is despite BP, Shell and Total making after tax profits of $10 billion in 2016ย alone.

The government continues to offer handouts, year after year, to avoid the oil companies packing up and abandoning the North Sea, leaving the communities that have served them for decades reeling in theirย wake.

At least, thatโ€™s what the oil companies want the government toย believe.

A new report from thinktank InfluenceMap reveals how a network of Big Oil companies, lobbyists and major accounting firms have used the governmentโ€™s pledge to โ€œmaximise economic recoveryโ€ of North Sea resources and their direct links to government to secure multi-billion pound handoutsย that could last forย decades.

North Seaย Network

Oil and gas exploration in the North Sea has been a staple of British industry for around 60 years. But as the oil starts to run dry, companies are beginning to pack up andย leave.

Faced with a potential mass departure, the UK government has become increasingly generous. Since 2015, the Treasury has consistently cut taxes applied to the industry. For instance, in March 2016, the Petroleum Revenue Tax was cut to zero percent, essentially abolishingย it.

The Overseas Development Institute (ODI) estimated that the UK government gives a ยฃ6 billion per year in subsidies to the fossil fuel sector, with a direct subsidy of ยฃ750 million to North Seaย companies.

The industry has secured these budgetary treats by persuading the government that the North Sea is a particularly costly environment to operate in, despite historically making larger profits than other UK industries. Companies claim that without the governmentโ€™s help, they would have to pack up and leave, taking valuable jobs and tax contributions withย them.

They have been aided in spreading this message by professional lobbyists and accounting firms that help keep the oil companies firmly in the black, according toย InfluenceMap.

Each of the players has a direct line to government through quarterly meetings of the Treasury-run Oil and Gas Industry Direct Tax Forum. The forum is โ€œmade up of oil and gas industry representatives and advisersโ€, who meet with โ€œrepresentatives from HM Treasury (North Seas Branch, corporate taxย team)โ€.

Industry group Oil and Gas UK (OGUK) has met with ministers at least 49 times in the last 3 years, and spends around ยฃ15 million on lobbying each year, InfluenceMap said. OGUK has taken credit for some tax breaks announced in George Osborneโ€™s March 2015ย budget.

The United Kingdom Oil Industry Taxation Committee (UKOITC) has also called for tax breaks for the industry, and holds a joint annual conference with the Treasury. It also helps to prepare the agenda for the Oil and Gas Industry Direct Tax Forumย meetings.

Both groups are big supporters of cutting oil companies’ย taxes.

The trade associationsโ€™ lobbying activities are supported by the activities of the Big Four accounting firms (Deloitte, EY, KPMG, and PwC), all of which have professional ties to the Big Oilย companies.

EY audits BP, Shell, ConocoPhillips, Apache, and Total on a global basis. PwC audits Centrica, ExxonMobil, andย Chevron.

Deloitte worked with George Osborne on a report on the energy industry prior to the first wave of tax breaks being announced, and released a report in 2014 saying tax breaks benefited the industry. KPMG recently released a report on decommissioning strategies for the North Sea industry, and has held joint seminars with OGUK.

All of four firms are on record supporting North Sea oil and gas tax breaks. All four firms are members of OGUK and UKOITC.

All of the Big Oil and Big Four companies regularly attend the quarterly Oil and Gas Industry Direct Tax Forumย meetings.

EY tells DeSmog UK that it participates โ€œin a number of industry groups, such as Oil & Gas UK, where we can add value to the discussion and where our services are calledย uponโ€

โ€œEY strives to have an open and constructive relationship with regulatory authorities and government bodies worldwide. We support improving certainty and transparency in the regulatory system and compliance with it. All of our services undergo considerable scrutiny to confirm they are consistent with applicable rulesโ€, itย said.

These players have helped spread a narrative that the North Sea industry is expensive for the companies, and that they are essentially doing the UK a favour by continuing toย operate.

This favour quickly turns into the basis for demands that the government pays them to stay, with the Big Oil network quick to point to job losses and economic upheaval that could occur if the industry packs up andย leaves.

InfluenceMap described this narrative as โ€œdemonstrablyย untrueโ€.

Research by Oil Change International showed tax breaks do not guarantee jobs, as government handouts donโ€™t necessarily make thier way down the chain toย workers.

And because the government is spending billions squeezing every last drop of oil out of the North Sea, it canโ€™t spend that money supporting low carbon energy industries โ€” so oil industry tax breaks may even be costing jobsย elsewhere.

In recent years, the North Sea industry has also become a burden on taxpayers, rather than contributing to the overall economy, as the network claims. In 2016, the Treasury spent ยฃ24 million more propping up the industry than it got in return through taxย contributions.

UKOITC and all the energy companies mapped above did not respond to DeSmog UKโ€™s request for comment. OGUK declined the opportunity toย comment.

Conflict ofย Interest

At the same time as helping Big Oil peddle a pro-subsidy narrative, the Big Four accounting firms have also helped boost industry profits, InfluenceMapย suggested.

Many companies involved in the North Sea have been accused of taxย avoidance.

BP and four of its main subsidiaries and Shell did not pay any corporation tax in the UK in 2014, according to a Sunday Times investigation.

Chevron has ยฃ32 billion in offshore accounts according to the International Transport Workers Federation. In 2013/14, consumers paid six times more tax on petrol than the oil and gas industry paid on all taxes on North Sea oil production, itย claimed.

The House of Commons Public Accounts Committee has criticised the Big Four for helping multinational companies exploit tax loopholes.

EY told DeSmog UK that its clients โ€œincluding those operating in the oil and gas industryโ€ seek the companies advice โ€œon a wide range of issues, including how to comply with the applicable tax laws and rulesโ€.ย ย 

PwC told DeSmog UK that it โ€œhas a professional and constructive dialogue with Government and industry bodies. We have strict processes in place to avoid conflicts of interest and comply fully with the relevant UK, European and international rules andย regulationsโ€.

โ€œOur people operate under clear principles, set out in our professional code of conduct. ย Our tax advice is likewise governed by our tax code ofย conductโ€.

The situation raises serious questions about whether the accounting firms have a conflict of interest in advising the government on North Sea oil and gas tax policy, while at the same time being employed by Big Oil for audit and accountancy services, InfluenceMapย said.

Decommissioningย Cost

The situation is likely to get worse in the coming years, as oilfields start to run dry and the cost of packing up the industry becomesย apparent.

Consultancy Wood Mackenzie has previously estimated that North Sea companies will spend ยฃ53 billion from 2017 decommissioning oil and gas infrastructure. The taxpayer could end up shouldering about ยฃ24 billion of this, through yet more tax relief schemes offered by theย Treasury.

Earlier this month, Shell submitted plans to abandon the famous Brent oil field. It estimated that dismantling its four platforms, co-owned by ExxonMobil subsidiary Esso, could take around 10 years, and come with 800,000 tonnes of carbon dioxide emissions.

That costly futureย could explain why the Big Oil network has been busy lobbying chancellor Philip Hammond for yet more tax breaks in this yearโ€™s spring budget, due on Marchย 8.

While the headline tax rates are likely to remain the same, the government may choose to reform particular taxes, and make further concessions to companies that are looking to decommission their North Sea assets, InfluenceMapย said.

So while Big Oil has almost drilled the North Sea dry, a network of companies, lobbyists, and accountants are now looking to wring every last drop out of the UKโ€™s increasingly generous fossil fuel subsidy schemes as the industry prepares to abandon the oilfields forย good.

Main image credit: DeSmog UK CC BYSA

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Mat was DeSmog's Special Projects and Investigations Editor, and Operations Director of DeSmog UK Ltd. He was DeSmog UKโ€™s Editor from October 2017 to March 2021, having previously been an editor at Nature Climate Change and analyst at Carbon Brief.

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